Mexican Peso Outlook: USD/MXN Strongly Correlated to Bond Yields

Mexican Peso Outlook: USD/MXN Strongly Correlated to Bond Yields

The last two weeks have been the most exciting and volatile at USD/MXN at a fantastic couple of months. The recent moves in bond yields have caused the US Dollar to perk up from its recent highs, hurting high-yield risk-on currencies such as the Mexican Peso, causing USD/MXN to take up to 21.62, before coming back down again as returns saw some corrective strain these past couple weeks, leaving the pair just over 20.50.

USD/MXN DAILY CHART

It is hard to find much to say concerning USD/MXN aside from its response to the bond market provided that it sounds actually the only fundamental driving force at the moment. The Covid-19 situation is still a grave concern in Mexico and also the financial outlook doesn0t appear to be improving anytime soon, but the pair is very likely to keep on trending downwards when the US Dollar depreciates on the rear of falling yields, and the opposite would occur when yields continue to rise.

From a technical perspective, the correction seen this past week appears slightly overstretched, something similar to what had occurred the last week once the bullish run had run out of steam, so a new break above 21.00 could be in order within the next few days. I am not surprised to see that USD/MXN stands where it now is, mostly because I had been hinting that the failure to continue analyzing the descending support line was a very clear indication that consumer excellence was picking up.

I'm slightly surprised to realize the way the upside correction accumulated speed so fast and broke beyond key Fibonacci amounts without difficulty, but I guess bulls had been gathering for a while. 21.62 is a good shout for a resistance area and I expect it to keep on attracting selling pressure when bullish momentum picks up again, although we may see some initial resistance round the 61.8% Fibonacci (21.19) this time around.

If this push higher in bond yields fails to materialize, it may be safe to expect that the US Dollar to go lower , which could bring a possible fall under 21.50 to get USD/MXN, at which point the 50-day easy moving average could provide some short-term aid at 20.35 before the 76.4percent Fibonacci (20.18) comes to play again.

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