Mexican Peso Forecast:
- USD / MXN trades cautiously, but the Federal Reserve’s decision Wednesday could cause volatility
- Although no policy changes are expected, the central bank could offer instructions for the next steps normalization
- If the Fed requires patience and does not signal an imminent shift in direction, then US dollar could recede, benefiting the Mexican peso and EM FX in general
From the end of June USD/ MXN’s pricing operations have been exciting for traders looking for fluctuating FX pairs. The accompanying daily chart shows that the pair has moved around horizontal resistance around 20.20 and short-term trend line support, which now passes 19.85, over the last few weeks. From a technical point of view, the price should decisively break each of these levels in order to achieve a clearly identifiable trend in the short term. The Federal Reserve stands on Wednesday there appear to be risks of moving under support remarkable.
The Fed will announce its July monetary policy decision tomorrow at 2 p.m. New York time. Although no changes in interest rates or asset purchases are expected, investors are closely monitoring the event to find clues as to what the institution could do next.
Before the House and the Senate less than two weeks ago, FOMC President Jerome Powell acknowledged that inflation has risen faster than expected, but at the same time recognized that the economy is still “Do it” where the criteria must be met to start removing accommodation.
Whereas not much has changed since then congressional certificate, Powell will probably stick with the script and refer to it “Further significant progress” is required before withdrawing stimulus. If the central bank continues creates a temporary rise in inflation, claims patience and does not indicate a imminent shift towards narrowing, U.S. the dollar may recede all the time, stimulating emerging market currencies with attractive “wear”. In this scenario, we can see a Large USD / MXN exchange rate decline in the coming days as traders reassess the outlook for US monetary policy.
Let’s go back to the technical specifications, stf USD / MXN is able to reach lower at daily closing prices and cross the 19.85 range, sellers may pair the 2021 with a low of 19.55. A clear break here can be seen at the next support at 19.00 at the psychological sign.
Alternatively, if Fed Receives a golden tone and launches a broad-based dollar rally, traders should prepare for a sharp jump in the USD / MXN. Should the price rise higher, the first major hurdle will come in the 20.20 zone, where the 200-day moving average is currently sitting. If this level is exceeded, the USD / MXN buying momentum may move in the t direction20.75 in the region, where the highest price in June is converging with the long-term downward trend.
USD / MXN TECHNICAL CARD
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—Written by DailyFX market strategist Diego Colman