USD/MXN Technical Outlook Hinges on Direction of Stock Markets

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USD/MXN Highlights:

  • USD/MXN rally to continue on more de-risking
  • Big levels ahead to watch should the surge continue
  • Watch the stock market, eyes on the NDX

USD/MXN rally to continue on more de-risking

It took some time for USD/MXN to respond to weakness in equity markets, but this week it came to life as U.S. weakness spread across global markets. The spike higher has put it back in the game for higher prices, but there lies some sizable resistance ahead.

The resistance zone stretches from 22.83, a pullback low in March that has seen some touches since, and 23.27, a low in April that is in near alignment with the June high. Should we see USD/MXN continue to string it together into that zone watch how price action behaves and if equity markets are still weakening. A breakout through could really have USD/MXN off to the races towards the previous highs in the 25s…

USD/MXN Daily Chart (watch the zone around 23)

USD/MXN daily chart

USD/MXN Chart by TradingView

Turning to the equity markets, eyes are on the global picture of course, but if there is index I’m most focused on, it is the Nasdaq 100. It is dominated by the world’s largest, leading companies (FANMAG+ Tesla), and thus the leader for the U.S., which has been a leader globally. So goes the leaders goes the rest…

After breaking its parabolic trend the NDX has been on its backfoot. In the near-term it is still pointed lower, with a descending wedge coming into view. This could snap the correction or accelerate it; will be paying close attention to whether it breaks the upper or lower trend-line of the formation.

In the event of a breakdown, then it is likely we continue to see USD strength as de-risking continues. If, however, we see the top of the pattern break and stocks rise, then look for the USD to pull back, likely giving MXN a boost.

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Nasdaq 100 4-hr Chart (descending wedge)

Nasdaq 100 4-hr chart

USD/MXN Chart by TradingView

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—Written by Paul Robinson, Market Analyst

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