USD / MXN Weekly Forecast: Bear DOVISH FED
- Powell’s stupid speech at Jackson Hole Symposium considered of US dollar and boosted risk assets everywhere heading for the weekend
- The central bank’s decision to avoid making strong cuts to the downward timeline is likely to reduce US Treasury yields and support the Mexican peso in the near future
- USD / MXN may break below the psychological limit at 20.00 in the coming days as traders reduced long-term exposure to greenback
A speech by the chairman of the Federal Reserve at the Jackson Hole Virtual Summit triggered a positive response from the Mexican peso and risk assets everywhere US Treasury interest rates lower. Although Jerome Powell noted that the criteria for “significant progress” in inflation were met and that it may be appropriate to start reducing accommodation this year he was vague and did not signal the September announcement FOMC meeting.
Powell’s lack of commitment to a “tight schedule” and his commitment to carefully assess incoming data and evolving risks before making a decision suggest that there is a lack of consensus within the central bank to start removing incentives soon, and policy makers can wait a little longer before pulling the shutter button.
As the Federal Reserve is still cumbersome and more patient than ever, waiting for the labor market to recover further US Treasury performance probablystay short-term depression, a scenario that would support higher-yielding currencies, such as the Mexican peso, which has one of the most attractive carrying options–customized–for–volatility in EMFX space. For this reason, USD/ MXN could remain protective and maybe next week below 20.00 psychological limit.
Although we may see a further decline in the USD / MXN at the end of the month, it is important to continue to monitor economic data, as new information on the macroeconomic front may change the market description. That means the U.S. Department of Labor will release an August non-wage report next Friday (NFP). Traders expect to see 750,000 new jobs, with projections ranging from 450,000 to 950,000. In general, something close to a “printed 1 million“ should be enough to stimulate US dollar buying interest and keep the September narrowing announcement alive.
USD / MXN TECHNICAL ANALYSIS
Heading over the weekend, USD / MXN bears gained control of the market and then moved the exchange rate close to a significant support area close 20.20 / 20.10, where the low of 25 August is approaching the 200-day moving average.If sellers manage to push prices below this critical threshold in the coming days as more and more traders sour against the US dollar, it will be possible to move towards 19.80 shortdeadline. On the other hand, when the USD / MXN turns higher unexpectedly first technical resistance appears at 20.45 / 20.50. An rise above this barrier, the June high of 20.75 would be the target for an immediate rise.
USD / MXN TECHNICAL TABLE
EDUCATIONAL INSTRUMENTS FOR TRADE
– Written by DailyFX market strategist Diego Colman