USDMXN stability could be put to the test

30 December 2022 212
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By the results of 2022 the pair USDMXN becomes one of the best of all world currencies in terms of stability. The Mexican peso did not only remain stable against the dollar, but also strengthened by almost 5%. Only the Brazilian real can show similar success, all other world currencies finish the year 2022 against the U.S. dollar near zero dynamics in the best case, and in a strong decline at the worst case.

 

However, there are significant doubts that such stability of the USDMXN will extend to the next year. So, Reuters analysts predict a weakening of the peso against the dollar. Future divergence in monetary policy between the Fed and the Bank of Mexico is given as the main reason.

 

Over the last year and a half, the Mexican financial regulator has raised its key rate from 4% to 10.5%. At the same time, by now the key rate has already surpassed the inflation level, which makes the actual yield from assets denominated in pesos positive. Neither the U.S. dollar nor the other major world currencies can show actual positive returns. This is what attracted a lot of foreign capital to Mexican assets, which supported the exchange rate of the national currency.

 

But now the Bank of Mexico is expected to stop the cycle of policy tightening, while the Fed is determined to continue increasing interest rates above 5%. This divergence may cause the upward trend of USDMXN. Traders on the Chicago Mercantile Exchange have already started betting on the decline of the peso.

 

At the end of November, after setting a minimum since February 2020, the pair USDMXN rebounded sharply, but a stable upward trend has not yet been formed. The upward momentum stopped at the very important level of 19.8, which acted as a strong support almost all of 2021 and most of this year. The Stochastic gives a buy signal, and soon a new attempt to climb to the 19.8 level is likely.

 

 

The following trading strategy option can be suggested:

 

Buy USDMXN at the current price. Take profit 1 – 19,6. Take profit 2 – 19,8. Stop loss – 19,3.

 

Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.

This content is for informational purposes only and is not intended to be investing advice.

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