USD/MXN Sways on US Jobs Data, Focus on Mexican Election

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USD/MXN Forecast: Neutral

Mexico is set to go to the polls on June 6th as thousands of elected offices are up for grabs. I expect traders to be paying close attention as USD/MXN jumps to a three-week high after trading in a tight range throughout the end of May.

This election will determine how much power current president Andres Manuel Lopez Obrador has for the second half of his term. The most likely scenario at the moment seems to be that Lopez Obrador’s party – National Regeneration Movement (MORENA) – will retain control of the lower house with help from its allied parties. The outcome for the Peso in this situation seems to be slightly negative, mostly on the back of uncertainty over what policies MORENA will implement to avoid losing its legislative influence.

It is also believed that Obrador would tighten his policies around the energy sector if he gains a majority, so the Peso could depreciate further as investors’ concerns grow. In the past, Lopez Obrador has taken steps to strengthen Pemex’s failing financials through capital injections and tax cuts, and moved to change oil and gas laws.

A least likely scenario would be if Lopez Obrador loses control of the lower house, which many analysts believe would see an appreciation in the Mexican Peso.

USD/MXN Levels

USD/MXN saw a big rise on Thursday as the ADP jobs figures beat expectations, jolting the US Dollar out of a tight three-week range. But the move has mostly been corrected as of Friday afternoon, after the NFP data once again failed to live up to the expectations set by ADP, coming in at 559k, over 400k below Thursday’s private payroll reading.

The pair hasn’t really had much of a trend over the last few months, with sideways consolidation being the key theme. Thursday’s rejection to push above the 76.4% Fibonacci (20.18) showed resilience from Peso buyers in the short-term, pointing towards further downside pressure now that the pair is back below the 20 Pesos mark.

But even now, there will need to be further momentum built to bring the pair significantly lower, as USD/MXN has been unable to break below 19.80 for the last two weeks, with further key support at 19.72.

USD/MXN Daily chart

Fibonacci Confluence on FX Pairs

— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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