USD/MXN Up for a Third Day As Risk Aversion Fuels Dollar Demand

The USD/MXN pair looks set to register the third day of gains, albeit on low trading volumes, as the greenback maintains its weak bullish stand against several currencies this Thursday. 

Latam currencies and stocks were dragged down by various negative fundamentals and risk aversion that promoted flows into the safe-haven greenback. In addition, a fall in commodity prices is dragging down Latin American currencies, home to the world’s largest metal producers. The Mexican Peso is also facing pressure from the steep 4.45% drop in crude oil prices on the West Texas Intermediate benchmark. 

After iron ore producer Vale cut its 2022 production outlook, Brazilian stocks fell 0.3%. The Argentinian Peso’s drop to record lows also mirrors the negative sentiment around emerging market currencies, which face pressure from heightened expectations of more aggressive tightening by the US Federal Reserve. The same sentiment and fears of a global recession are also driving flows into the US Dollar, propping up the USD/MXN pair.

USD/MXN Forecast

The recovery of the USD/MXN pair continues due to the bounce on the 20.48769 support level. This bounce has 20.69617 (15 June high) as the initial target. The bulls need to clear this barrier to attain the 20.91331 resistance level, the site of the previous highs of 28 January, 14 March and 12 July 2022. Above this level, 21.06422 (11 March and 14 July 2022 highs) forms the barrier that needs to be broken to form a higher high that continues the uptrend recovery.

On the flip side, if the upside move is arrested before it clears 21.06422, this could signal a stall in the recovery move. The bears would seek confirmation of the resumption of the correction via a breakdown of the lower edge of the rising wedge pattern at the 20.48769 support level. Confirming this breakdown opens the door to a measured move with a completion point at the 19.5000 confluence of lows seen on 31 May-12 June 2022. This breakdown move must take out the pivots at 20.19249 (6 April, 16 May and 29 June highs working in role reversal) and 19.82552 (24 June low). Intervening support at the 20.0000 psychological mark (22 June low) must also go to complete the measured move.

USD/MXN: Daily Chart