Central Bank Currency Race
The question lingers: who will make the first move – Mexico’s Banxico or the US Federal Reserve? With a noteworthy 5.75% interest rate spread that tilts in Mexico’s favor, the green bills flow into the Mexican Peso due to the lucrative carry trade. As both nations gear up for their respective elections, an air of turbulence is expected to envelope both currencies.
Economic Elections
Both countries are grappling with inflation challenges and an air of uncertainty regarding the course of their monetary policies. Time is of the essence. The peso’s strength lies in which central bank decides to slash rates first. Anticipation rises as Mexico’s presidential election approaches in June 2024, with the US following suit in November. Both races are neck and neck, capturing the attention of global spectators.
GDP Performance
As of December 2023, Mexico’s GDP has been on a positive trajectory for nine consecutive quarters. However, the December figure represents the lowest out of the recent quarterly performances, potentially signaling a slowdown in forthcoming growth.
How does this bode for traders looking to strike while the iron is hot?
The Mexican Peso is actively traded in the spot Forex market and the CMEGroup futures exchange, with specific reference to the June futures contract (M6M24). It is imperative to note that the movement of the Forex market chart runs counter to that of the futures markets.
Technical Analysis
2023 witnessed a 15% surge in the Peso, hitting a zenith of .05972 in September. Following a corrective dip into October, prices bottomed out and continued a steady climb towards the year-end. Since January 2024, the Peso has been fluctuating, recovering to near-stable levels.
The prevailing uptrend from 2023 remains intact as the market consolidates the gains from the previous year. Ending at a high price, the June Peso futures contract on January 08, 2024, marked a milestone at .05791. A breakout from this trading range could potentially propel the market to fresh contract highs, a development as pivotal as 52-week highs and lows in equities markets.
Financial Futures Trends
Leveraged Funds have maintained net long positions (evidenced by higher blue bars) since May 2023. As prices peaked in September 2023, these Funds tapered their long positions. However, in October, they resumed buying and steadily expanded their long positions.
Could this bullish sentiment be the catalyst that propels prices beyond the 2023 trading range towards new contract highs?
Seasonal Traditions
Research by Moore Research Center, Inc. (MRCI) delves into the historical performance of the Mexican Peso and identifies a trend of rallies from March through mid-April. The critical question emerges: was October a significant turning point for the Peso?
The cyclical nature of currencies, including the Mexican Peso, showcases seasonal patterns at the close of financial quarters.
In Conclusion
Analysis presented in this article outlines the potential impacts of monetary policy decisions by Mexico’s central bank, Banxico, and the US Federal Reserve on the Mexican Peso. With a substantial interest rate spread favoring Mexico, the Peso draws in capital inflows, thereby influencing its strength. The uncertainties surrounding both nations due to upcoming elections and inflation challenges create a dynamic landscape. Traders are encouraged to monitor spot Forex and futures markets, particularly the CMEGroup, for strategic opportunities. While technical analysis points towards a consolidating market trend with breakout potential, Leveraged Funds’ positions and seasonal cues hint at a bullish bias. However, traders are advised to supplement seasonal insights with comprehensive technical and fundamental indicators for well-rounded and informed decision-making.
For further Forex updates, stay tuned with Barchart
At the time of publication, Don Dawson did not have any direct or indirect positions in the securities mentioned in this article. The information provided is for informational purposes only. For more details, refer to the Barchart Disclosure Policy.
The opinions expressed herein are solely the author’s and do not necessarily reflect those of Nasdaq, Inc.
