The increase in Donald Trump’s ratings in the presidential race has prompted panic among USDMXN bears. The return of previous trader fears has prompted a desire to sell the peso as quickly as possible. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Highlights and key points
- The Trump trade revival has pushed the USDMXN quotes higher.
- The 100%, 200%, and 2000% tariffs on imports from Mexico put pressure on the Mexican peso.
- Emerging markets’ concerns are driven not only by events in the US but also in China.
- Open long trades if the USDMXN pair settles above 19.65 and exceeds 19.75.
Weekly fundamental forecast for Mexican peso
The resurgence of Trump trade has prompted investors to direct their focus toward the Chinese yuan and Mexican peso. Should the Republican candidate return to the White House, it would have a detrimental effect on these currencies. In a recent Bloomberg interview, Donald Trump stated his intention to impose 100%, 200%, and 2,000% tariffs on imported cars from Mexico. In light of these developments, the USDMXN currency pair has seen a notable increase in value.
Following Claudia Sheinbaum’s victory in the presidential election, the outlook for the super peso significantly deteriorated. Investors worried that the new leader’s reforms could result in a surge of capital outflows from Mexico. Coupled with Banxico rate cuts and the potential for new tariffs from Donald Trump, this triggered the USDMXN bullish momentum.
The situation proved to be less adverse than anticipated. Claudia Sheinbaum has asserted that none of the reforms are detrimental to business. Private foreign investments will be respected. Kamala Harris’ honeymoon period has overshadowed the Trump trade, and the US Fed’s abrupt start to the monetary expansion cycle was the final catalyst for USDMXN to stabilize.
Mexico’s inflation and Banxico rates
Source: Bloomberg.
Mexico’s inflation rate decelerated in September, reaching 4.58% and outpacing the projections made by Bloomberg experts. Banxico has already reduced its key rate twice, from 11% to 10.5%, and its head, Victoria Rodriguez, does not rule out further acceleration. However, past experience demonstrates that when monetary expansion cycles are synchronized, emerging market assets tend to become more attractive.
JP Morgan anticipates that the Mexican peso may appreciate under certain conditions, given the robust positioning and favorable estimates. Nonetheless, the potential for the USDMXN pair to rally in the short term is increasing. Most emerging market currencies are facing pressure, which is not solely due to the US presidential election.
Developing countries’ currencies volatility
Source: Bloomberg.
After Beijing announced a significant monetary stimulus of hundreds of billions of dollars, investors were anticipating sustained fiscal support for domestic demand. However, their expectations did not materialize. Consequently, Chinese equities, like emerging market currencies, faced significant volatility. The volatility of emerging market currencies is at its highest levels since the spring of 2023.
If the Mexican peso had not been appreciating, USDMXN bears could have benefited from the carry trade strategy. Thus, the high global risk appetite and the fall of the main funding currency, the yen, created excellent prospects for the Mexican peso.
Weekly USDMXN trading plan
As the US presidential elections approach, the pressure on the Mexican peso will likely grow. Consider opening long trades or adding them to those initiated at 19.75 if the USDMXN pair consolidates above 19.65 and pierces the resistance of 19.75.
Price chart of USDMXN in real time mode
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.
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