USD/MXN Eyes Multi-Year Lows As Bears Gain Momentum

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mexican peso 50 obverse

USD/MXN extended downside movement on Friday following the major bearish breakout last week. The pair looks set for a deeper correction below the 2013-low, turning the long term sentiment to bearish. Mexico’s first quarter Gross Domestic Product (GDP) figure, which is due later this month, will provide a more clear direction to the pair.

Technical Analysis

As of this writing, the pair is being traded near 12.9500. A hurdle may be noted around 13.0603 that is the high of the ongoing week ahead of 13.0740 which is the trendline support turned resistance as demonstrated in the following chart. 

On the downside, the pair is likely to find a support near 12.9231 that is the 100 Simple Moving Average (SMA) ahead of 12.7590, the confluence level of 200 SMA and 50% fib level. A daily closing below the confluence level could spur renewed selling interest, opening doors for 11.9308 that is the swing low of the previous wave and low of 2013.

Industrial Production

On Monday the Instituto Nacional de Estadística y Geografía (INEGI) is due to release the Mexico’s industrial production report. According to the median projection of different economists, the industrial production increased by 0.8% during March 2014 as compared to 0.7% increase in the same month of the year before. Similarly, the industrial production saw an increase of 0.16% in March compared with 0.30% increase in the month before. Generally speaking, higher industrial production is considered positive for the economy and the USD/MXN tends to decrease following the upbeat industrial production figure.

Retail Sales

On Wednesday the Instituto Nacional de Estadística y Geografía (INEGI) will release the retail sales report. According to the average forecast of various economists, the retail sales in Mexico increased by 0.27% in March compared with 1.7% decrease in the same duration of the year before. Similarly, the retail sales rose by 0.15% during March compared with 1.30% decline in the month before. Higher retail sales are considered positive for the economy hence the USD/MXN tends to rise following the downbeat retail sales release.

Unemployment Rate

On Thursday, the Mexican government will release the unemployment report. According to the median projection of various economists, the rate of unemployment in Mexico declined slightly to 4.7% in April as compared to 4.8% in the month before, better than expected actual outcome will be considered bearish for the USD/MXN and vice versa.

Inflation Rate

On Thursday, the U.S. Bureau of Labor Statistics is due to release the inflation rate figure. According to the average forecast of economists, the inflation declined to 1.3% in April compared with 1.5% in the same month of the year before; higher than expected actual reading will be considered bullish for the USD/MXN and vice versa.

Conclusion

Considering the overall technical and fundamental outlook, selling the pair around the trendline resistance could be a good strategy; the target may be near the swing low of the previous downward wave as described above.

To contact the writer of this story: Usman Ahmed at usman@forexminute.com