Prospects for the Mexican peso:
- The Federal Reserve did not change its monetary policy and noted that the institution was still a long way from considering taking back accommodation.
- The terrible tone of the central bank weighed US dollar and increased emerging market currencies such as the Mexican peso
- The negative prejudice against the dollar was exacerbated on Thursday by weaker-than-expected US GDP
Most read: Does Bitcoin Shine in Gold?
The Mexican peso strengthened moderately on Thursday, supported by a broad-based weakness of the US dollar and improved risk appetite, reflected in the new all-time peaks in stock markets. Near New York, USD / MXN fell 0.3% to 19.85, falling for the seventh consecutive day and touching its lowest level since mid-July.
EM FX appeared to have benefited from negative dollar sentiment following the Federal Reserve’s monetary policy decision and some disappointing macroeconomic data earlier today.
On the first point on Wednesday, the Fed kept interest rates and the QE program unchanged, leaving high inflation temporary and noting that the economy has moved closer to reducing asset purchases. Ttheme recovery optimistic assessment, But, did not do trigger positive reaction to greenback, such as FOMC The chairman quickly stated that “Further important progress” criterion et to lessen accommodation he hass haven’t met yet. Powell’s notes led traders to speculate et narrowing notice does not come at the end of summer or early autumn, but at the end of the year, which may keep nominal yields low in the near future.
The bearish tone of the dollar carried over from the previous day was exacerbated by the results of the US gross domestic product released this morning. According to the report, GDP grew at an annual rate of 6.5% in the second quarter, well below 8.4% forecast by the market. Although worse than expected title can be partly attributed to a sharp decline in stocks, many investors argue expansion of cooling calls on the FOMC to be more patient in withdrawing the stimulus.
In general, while the Fed sad monetary policy can be seen as a rising catalyst for emerging market currencies, such as the Mexican peso, concerns about a new wave of COVID-19 could hurt yield-seeking trade and limit their appreciation potential. Looking specifically USD/ MXN, which means the pair has room to move forward in line with the downward trend, but if the negative headlines of the coronavirus deepen and investors start to worry about a global recovery, the price may rise temporarily. Needless to say, fears of a slowdown, justified or not, could lead to volatility and increase demand for secure currencies.
USD / MXN TECHNICAL ANALYSIS
The USD / MXN is currently testing a key support area near 19.85, defined by a short-term uptrend in the game since early June. If the pair manages to fall decisively below this level and close, sellers can move the exchange rate to the lowest point in 2021 in the area 19.55. A clear pause can be seen here at 19.00 at the psychological sign.
On the back, if the USD / MXN makes an unexpected rebound, the first resistance appears at 20.20 zone (200-day moving average). If it technical wall will be taken out, the buying momentum may move price 20.75 towards the region where the highest level in June is concentrated on the long-term bear trend line.
USD / MXN TECHNICAL TABLE
EDUCATIONAL INSTRUMENTS FOR TRADE
– Written by DailyFX market strategist Diego Colman