Prospects for the Mexican peso:
- Mexican PesoThe setback of recent days was again hampered by weaker economic data: both 21.
- COVID-19 infections with an increased delta variant with a relatively low vaccination rate in Mexico may prolong the peso.
- We can use ttheme IG customer mood index for USD / CAD interest rates USD / MXN exposure.
Weight in pickles
There has been a shift to risky assets in recent days, driven in part by speculation that the Federal Reserve is slowing down its narrowing plans during the growing delta-type infections in the United States. By supporting the recovery of commodities, investors have become more lenient with higher-yielding and growth-sensitive currencies. But there has been a significant backlog: the Mexican peso
Despite the gains made at the beginning of the week, the Mexican peso has once again found itself on a recent wave of economic data that has fallen short of expectations, which has shortened the resemblance of any rally. Based on the disappointing June Mexican retail report and August Mexican inflation data, 2Q’21 and June Mexico’s GDP figures became weaker than expected today.
Close to critical technical moments, USDThe decline in / MXN and the progress of MXN / JPY may initially lag behind as markets digest these otherwise discouraging fundamental developments.
USD / MXN technical analysis: daily schedule (August 2020 to August 2021) (Figure 1)
The rise in USD / MXN interest rates seemed in jeopardy earlier this week after the pair fell below the peaks of the March and June fluctuations. But once there was resistance – a 38.2% withdrawal from the April 2011 low / April 2020 high range of 20.3215 and a 76.4% withdrawal from the 2020 low / high range of 20.2349 – has become an area of support. In addition, USD / MXN finds support in its daily EMA envelope, and as daily MACD is still higher, it is too early to assume that the tide is over.
MXN / JPY rate Technical analysis: daily schedule (March 2020 to August 2021) (Figure 2)
Ever since you arrived 76.4% of the Fibonacci retracement from the highest / lowest range in 2020 is 5,579 in early July, MXN /JPY interest rates have been decoupled from other risk assets and have fallen slowly. The couple finds that they are taking an important test, but are fighting to restore the upward trend of April 2020 and March 2021 – the upward trend of the pandemic.
The momentum remains negative – MXN / JPY is still below its daily 5-, 8-, 13- and 21-EMA envelopes, which are in steep order — while the daily MACD falls below its signal line and the daily slow stochastic remains over the sold territory. Failure to re-take 5,430 points to a deeper setback in the withdrawal of the 61.8% Fibonacci from the highest / lowest range of 2020 at 5,330 could be played until the end of August.
Use a proxy server to monitor USD / MXN retail positioning
Regarding the performance difference USD /CAD and USD / MXN rates in recent weeks, it should be noted that the Canadian economy is more independent of the US economy than the Mexican economy. Although the United States is both countries’ largest trading partner, more than 80% of Mexican exports go to the United States (nearly 70% for Canada), while 30% of Mexico’s GDP comes from US economic activity, up to 20% for Canada).
The proximity of both countries, given their trade relations with the United States, also means that their currencies tend to trade in a similar way. In other words, it is reasonable to expect similar trading at USD / CAD and USD / MXN.
Currently, the 5-day correlation between pairs is currently +0.10 (this can be easily explained by outperforming the CAD MXN over the past week), while the 20-day correlation is +0.76. One week ago, on August 18, the 5-day correlation was +0.81 and the 20-day correlation was +0.56.
IG CUSTOMER RATING INDEX: USD / CAD RATE FORECAST (August 25, 2021) (TABLE 3)
USD / CAD: Data from retailers show that 75.39% of traders are online and the ratio of long to short traders is 3.06-1. The number of traders is 34.93% higher than yesterday and 43.92% higher than last week, while the number of traders is short, 20.73% lower than yesterday and 38.94% lower than last week.
We usually take the opposite view of the mood of the crowd and the fact that the net length of traders indicates that USD / CAD prices may continue to fall.
Traders are even taller than yesterday and last week, and the combination of the current mood and recent changes gives us a stronger USD / CAD decline in counterparty trading bias.
– Written by Christopher Vecchio, CFA, Senior Strategist