Mexican Peso Rises From All Time Lows Following Trump Defeat – But Can The Rally Sustain The Momentum?

The Mexican Peso rose nearly 2% on Tuesday after Democrat nominee Hillary Clinton outperformed her rival Donald Trump in the first of three presidential debates. Recently, the peso has been moving in inverse proportion to the probability of a Donald Trump victory, as the Republican candidate is perceived to be a significant threat to Mexico’s economy.

The peso plunged to a record low of about 19.90 against the U.S dollar last week and had hovered near an all-time low around the 20.00 threshold for a couple of day ahead of the widely expected debate, as polls indicated support was growing for Trump. Trump has pledged to renegotiate the two-decade-old North American Free Trade Agreement. This could spell trouble for the Mexican economy as the United States is Mexico’s biggest single export market.

If Trump is elected, and the NAFTA agreement is terminated, some Mexican goods will be slapped with a 35% tariff, such as Ford cars that are made in Mexico and sold in the United States

Furthermore, the Republican nominee blamed immigrants from Mexico for causing a number of U.S’ evils such as violent crime, drugs and the loss of jobs. Trump launched his campaign last year, promising to step up immigration controls and even vowing to build a wall along the US – Mexico border.

Until the Election Day on November 8, there are two more debates and the peso is foreseen to keep fluctuating with each event.

However, in general, Trump is not the only reason triggering the downfall of the Mexican peso versus the greenback. Depressed oil prices, declining foreign investment, and stagnating wages for low-income workers are among structural problems that Mexico’s government is facing. Mexico’s economy was reported to have contracted for the first time in three years in the second quarter of this year. Thus, it is hard for the peso to hold on to today’s gains, purely based on a Clinton victory.


Fig: USDMXN H4 Technical Chart

USDMXN rebounded from the 23.6% Fibonacci retracement level at 19.44059 after falling steeply from all-time highs at 19.91962. The sharp decline has brought the market into bearish territory and pushed the price action to move past the two moving averages. But the downside seems short-lived as the price has crossed back above the long term MA50 from below. With the RSI Index nearing the oversold territory, the market could ounce back and resume its rise to test the recent highs.

Trade suggestion

Buy Stop at 19.60000, Stop loss at 19.44000, Take profit at 19.74000

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