Mexican Peso Forecast: USD/MXN Rates Break Critical Support Region - Key Levels

USD/MXN RATE TECHNICAL ANALYSIS: WEEKLY CHART (JANUARY 2014 TO NOVEMBER 2020) (CHART 2)

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Our weekly view remains consistent. “The continued pullback from the March 2020 high suggests that the triangle breakout experienced in Q1’20 may ultimately yield to a return to the triangle. To this end, momentum on the weekly timeframe remains firmly bearish, more so than on the daily timeframe.

"USD/MXN rates are below their weekly 4-, 13-, and 26-EMA envelope. Weekly MACD is trending lower below its signal line, while Slow Stochastics are nestled in oversold territory. A pullback towards symmetrical triangle support near 19.7300 over the coming weeks cannot be ruled out, nor can a deeper retracement towards 19.3000.”

USING A PROXY TO TRACK USD/MXN RETAIL POSITIONING

With respect to the difference in performance between USD/CAD and USD/MXN rates in recent weeks, it should be noted that the Canadian economy is more independent from the US economy than is the Mexican economy. While the United States is both countries’ largest trading partner, over 80% of Mexico’s exports go to the United States (compared to near 70% for Canada), while 30% of Mexico’s GDP is derived from economic activities involving the United States (compared to 20% for Canada).

The close proximity of both countries given their trade relationship with the United States also means that their currencies tend to trade in a similar fashion as well. In other words, there is a reasonable basis of expectation for USD/CAD and USD/MXN rates to trade in a similar fashion. To this end, the 20-day correlation between USD/CAD and USD/MXN rates is currently +0.81; one week ago, the 20-day correlation was +0.80.

IG CLIENT SENTIMENT INDEX: USD/CAD RATE FORECAST (NOVEMBER 24, 2020) (CHART 3)

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USD/CAD: Retail trader data shows 72.82% of traders are net-long with the ratio of traders long to short at 2.68 to 1. The number of traders net-long is 0.27% higher than yesterday and 3.09% higher from last week, while the number of traders net-short is 2.49% lower than yesterday and 37.59% lower from last week.

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