Mexican Peso Forecast At Inflection Point - Levels For MXN/JPY, USD/MXN

MEXICAN PESO HAMPERED BY RISING YIELDS

It’s been a tough few weeks for EM FX. Rising global bond yields, but US Treasury yields, in particular, have forced a wave of asset reallocation, creating churn within FX markets as well. But the worst may be behind the Mexican Peso.

More US fiscal stimulus is good news for risk appetite broadly, and a better than expected US labor market report for February has shifted the narrative from ‘inflation’ to ‘reflation,’ which tends to be beneficial for growth-linked assets. USD/MXN rates may be ripe for a reversal, while MXN/JPY rates could find their footing and shake off what’s been trendless trading thus far in 2021.

MEXICAN PESO ECONOMIC CALENDAR - REST OF WEEK

Peso traders have already seen the major event come down the pipeline for the week, with the release of the February Mexican inflation rate (CPI) earlier today. With both headline and core measures beating each of the forecast and prior readings, speculation that Banxico may be looking at a rate cut at its March 25 meeting may fade; after all, it was the 25-bps rate cut in February that helped precipitate some of the MXN weakness. On Friday, the January Mexican industrial production report is due and likely to provoke some volatility in the pair, which could pose an obstacle at the end of the week.

USD/MXN RATE TECHNICAL ANALYSIS: DAILY CHART (FEBRUARY 2020 TO MARCH 2021) (CHART 1)

Mexican Peso Forecast at Inflection Point - Levels for MXN/JPY, USD/MXN

USD/MXN rates broke the downtrend from the April and September 2020 highs in mid-February, and have since then been on a steady drift higher. But USD/MXN rates have reached the crucial 61.8% Fibonacci retracement of the 2020 low/high range at 21.2942, which is an important reason for pause: this particular retracement level represents a potential inflection point. By returning above the 61.8% retracement, USD/MXN rates would shift from a neutral perspective to a bullish perspective.

However, USD/MXN rates are attempting a classic turnaround Tuesday, with a bearish piercing candle forming on the daily chart. The fight to shift momentum has begun, as the profile remains rather bullish. USD/MXN rates are still above their daily 5-, 8-, 13-, and 21-EMA, which is still in bullish sequential order. Daily MACD is trending higher and still above its signal line, while Slow Stochastics are turning lower, yet remain in overbought territory. A drop through the daily 5-EMA would be the first sign a turn has arrived.

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