USD/MXN holds off channel support as Mexico’s trade deficit rises

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USD/MXN yesterday found support near the lower channel of the daily triangle as durable goods orders jumped surprisingly in the US during February despite bad weather, showing the strength of the world’s largest economy and the trade deficit of Mexico rose more than expectations.

Technical Analysis

The pair is being traded near 13.14 at 8:30 GMT in Asia. Immediate support may be noted around 13.10 which is the 61.8% fib level as well as the channel support of the daily triangle. A daily closing below the channel could push USD/MXN into relatively stronger bearish trend opening doors for the 13.00 handle.

On the upside, the pair is expected to face hurdle near 13.20, the 50% fib level, ahead of the channel resistance which is currently standing around 13.28. A close above the channel resistance is required for further upside rallies towards the 13.50 handle.

US Durable Goods Orders

Manufacturers in the US received 2.2% additional orders for durable goods during February as compared to 1.1% decline in the month before, a report by the Census Bureau said yesterday, beating the median projection of analysts which called for 1% increase amid bad weather. USD/MXN held off the channel support nicely after the durable goods release.

Mexico Trade Deficit

The trade deficit of Mexico rose to $3.195 billion in February as compared to $0.500 billion surplus in the month before, the trade balance report revealed today. USD/MXN accelerated the upside movement after the report and the same trend is expected to last tomorrow.

Manufacturing Activity

On Tuesday, April 01, HSBC Holdings will release Mexico’s Manufacturing Purchasing Managers Index (PMI) for March. The manufacturing activity increased to 52.57 in March as compared to 52.00 in the month before, median projection of different analysts says. A reading above 50 shows expansion in manufacturing activity and vice versa. Better than expected actual outcome will be seen as bearish for USD/MXN and vice versa.

Consumer Confidence

On Wednesday, April 01, Instituto Nacional de Estadística y Geografía (INEGI) will release the consumer confidence report for the month of March. The report is compiled on the basis of thousands of surveys. According to forecast, the consumer confidence rose to 53.17 points in March as compared to 52.52 points in the month before. Better than expected actual outcome will be bearish for USD/MXN.

Capital Outflow

On March 19, the Federal Reserve announced third consecutive tapering in the stimulus by $10 billion. The US central bank has reduced the asset purchase program by $30 billion to $55 billion a month during last three monetary policy meetings. The decision intensified the capital outflows in the emerging-market economies such as Mexico, Turkey, Russia, India, and Indonesia, leaving their currencies vulnerable. Many analysts believe that USD/MXN might hit the 15.00 milestone this year as Fed plans to drop the entire QE by the end of October.

Conclusion

A breakout through the daily triangle will provide clear direction to USD/MXN, the long term bias for the pair remains very bullish amid tight monetary policy from the Federal Reserve.

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