USD/MXN Analysis and Talking Points
- USD/MXN | Coronavirus Hits Latin America
- Mexico’s Recession Prolonged
- Mexican Peso at Risk of Long Liquidation
- USD/MXN Technical Levels
USD/MXN | Coronavirus Hits Latin America
Until the backend of last week, the Mexican Peso had seemed somewhat insulated from the growing fears regarding the coronavirus. However, as the spread of the virus continues with reports now suggesting that it has reached Latin America (coronavirus case in Brazil), risks are growing to the downside for the Peso as safe-haven flows are likely to boost USD/MXN, particularly with the fall out in global equities weighing on the EM complex.
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Mexico’s Recession Prolonged
On the domestic front, yesterday’s Q4 GDP data, which showed a contraction of 0.5%, confirmed the extension of Mexico’s mild recession. In turn, with the coronavirus also expected to weigh on activity growth, Banxico may be forced to continue easing monetary policy and thus keep MXN under pressure.
Mexican Peso at Risk of Long Liquidation
It is also prudent to be cognizant of the fact that investors are notably bullish on the Mexican Peso with both non-commercials and asset managers holding near record number of net long positions. As such, the risks are asymmetrically tilted to the downside for the Peso, which remains vulnerable to liquidating longs as contagion of coronavirus threatens emerging markets.
USD/MXN Technical Levels
The recent upside in USD/MXN has been curbed by the 200DMA (19.21), which also marks today’s high. However, given the deterioration in risk sentiment USD/MXN remains tilted to the upside where a break above the 200DMA could see an extension towards 19.60. On the downside, it would take a close below 19.80 (100DMA) to resume the bear trend.
USD/MXN Price Chart: Daily Time Frame
Source: IG Charts
— Written by Justin McQueen, Market Analyst
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