USD/MXN: Correction Expected to Extend with Breakdown

Ibeth Rivero

Mexico continues to struggle with the Covid-19 pandemic, and new daily infections tick higher. 

While an ongoing lack of testing capabilities keeps the cases lower as compared to other economies, the impact is as severe. Per the Organization for Economic Cooperation and Development (OECD), GDP will drop by 9.2% in 2020 and expand by 3.6% in 2021. The correction in the USD/MXN can extend with a pending breakdown below its support zone.

The Force Index, a next-generation technical indicator, remains trapped between its converging descending resistance level and its ascending support level, as marked by the green rectangle. The position below the horizontal resistance level, together with this technical indicator below the 0 center-line, a breakdown remains likely. Bears are in control of price action in the USD/MXN.

Arturo Herrera Gutiérrez, the Secretary of Finance, confirmed an $11.5 billion economic package consisting of 29 additional projects. Private investment must exceed 50% of total costs for each. Together with the previous one, the government outlined 68 infrastructure projects worth $25.5 billion. The breakdown in the USD/MXN below its support zone between 20.4806 and 20.7180, as identified by the red rectangle, added to bearish momentum.

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With the Mexican economy faltering, border towns in the US face ripple effects amid the lack of cross-border traffic. Texas suffers the most due to its exposure and close relationship with Mexico, which accounts for over $300 billion in annual trade. The descending Fibonacci Retracement Fan sequence can force the USD/MXN through its support zone between 19.8580 and 20.1501, as marked by the grey rectangle. The next awaits between 18.9748 and 19.2602.

USD/MXN Technical Trading Set-Up - Breakdown Scenario

  • Short Entry @ 19.8500
  • Take Profit  @ 19.0000
  • Stop Loss @ 20.1000
  • Downside Potential: 8,500 pips
  • Upside Risk: 2,500 pips
  • Risk/Reward Ratio: 3.40

Should the Force Index push above its descending resistance level, the USD/MXN can embark on a minor short-covering rally. The upside potential remains reduced to its 50.0 Fibonacci Retracement Fan Resistance Level amid ongoing bearish pressures on the US Dollar. Forex traders should sell any rallies from present levels.

USD/MXN Technical Trading Set-Up - Short-Covering Scenario

  • Long Entry @ 20.4000
  • Take Profit  @ 20.8500
  • Stop Loss @ 20.1000
  • Upside Potential:  4,500 pips
  • Downside Risk: 3,000 pips
  • Risk/Reward Ratio: 1.50

USDMXN

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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