Summary:

• USDMXN rose last week after 3 consecutive weekly losses
• Pair has fallen strongly this year. (YTD -14%) 
• Has the market discounted too much for Trump’s inability to pass laws?

Last year saw a wild ride for the USDMXN, with the pair arguably the most sensitive to the US election race earning the cross the nickname of the “Trump trade”. The volatility peaked on election night with Trump’s unexpected victory causing a huge spike higher. The major cause of these moves was a weakening of the Mexican Peso with the new US president elect’s regularly using strong and aggressive rhetoric against the southern neighbour.

 The USDMXN rallied sharply as Trump won last year’s election. The market peaked shortly before he assumed his role however and is down 14% YTD. Source: xStation

Price continued to rise into year-end, peaking just above the 22 handle in mid-January – ironically just before Trump took his position in the Oval office. Since then there’s been several developments which has seen this pair drop and the Peso is currently one of the biggest gainers against the buck in 2017.

Firstly, a slight softening of Trump’s stance towards Mexico, including conversations with president Nieto and a backing down on some aspects of the infamous border wall lead investors to believe that perhaps the new administration wouldn’t be as negative for Mexico as first thought. Another aspect of the decline has come from the fall in the US dollar with Trump facing political gridlock and a seeming inability to deliver on his policy promises which were widely deemed as USD-positive.  

 

Daily Ichimoku clouds have clearly identified the last two major trend changes. Source: xStation.

The market has trended nicely since the election night with Ichimoku cloud on D1 providing clear signals. The strong break up through the cloud the day after the election indicated an uptrend and over the course of the next two months the market continued to rally. Price broke down through the cloud in the middle of February and price has persistently trended lower since. The market is now seeking to recover and has moved back within the cloud. Could a break to the upside provide a signal that the sell-off has run its course for now and that there could be some gains ahead?

 Price is currenlty in the Ichimoku cloud. Will a break above here signal an end to the recent downtrend and mark the beginning of an uptrend? Source: xStation