Apr 18, 20224 min read

EURMXN Analysis (Apr, 2022) Euro Russian Oil Dependency

Europe is a huge buyer of raw materials from Russia, mainly energy such as gas, oil and coal.

We saw a "EU purchases of Russian coal amounted to €5.16 billion, a figure that pales in comparison to the €71 billion spent on petroleum oils and the €16.3 spent on gas." - Euronews

This reliance on Russian energy and the political issues around the Ukraine conflict is a tug of war between trying to keep the economy afloat and supporting neighbouring countries.

What we've seen is the European economy is starting to show falling numbers on their economic reports.

Technology Summary

The technology summary page is overall showing a bearish sign for EURMXN...

All the following fundamental indicators showed negative data in comparison to the previous release:

Macro currency strength meter
GDP Differentials
Interest Rate Differentials
Hedge Fund Positions

This is a fairly high confidence idea especially considering the price data is already on its way down the past couple months.

Macro Currency Strength Meter

The macro currency strength meter is one of the main indicators in the analysis which we base our directional bias on. In this case we can see the past month has shown clear bearish signs since mid-march to date.

Similarly, the EURMXN price charts have followed a steep downturn during this period suggesting the fundamental data has been correct.

Overall, we're bearish on EURMXN as countries take on more risk across the world, the EU struggles with inflationary issues and potential risks associated to Russian energy reliance.--

GDP Differentials

The GDP differentials was the long term indicator that showed bearish signals. The European growth rates are starting to slow at a faster pace against Mexico.

What we're seeing is the differential starting to head to a negative region suggesting the EU may be in for a long-term downwards trajectory. Similar to what we saw between 2010 and 2013.

Trade Analysis (Imports/Exports)

EURMXN vs WTI

The WTI Crude oil prices were a major news topic this year as petrol/ gas prices soared across the globe causing either shortages, reduced disposable income or indirect inflation.

What we can see is that oil prices have had a huge recovery since early 2020 when prices of oil took a major hit, it's now peaked to prices not seen for over 10 years.

The rise in oil prices suggest a bearish movement across EURMXN due to the negative correlation they hold against each other... however, if Governments and OPEC choose to support businesses and consumers in any ways then this could decrease the price of oil creating a bullish bias for EURMXN.

EURMXN vs VW

Volkswagen is a major exporter of vehicles across the world and tends to follow a positive correlation against EURMXN the past 10 years.

The recent dips in VW prices suggest that EURMXN may be set to follow for a period of time... agreeing with the bearish outlook from our currency strength meter and technology summary.

EURMXN vs Castellum

"Castellum is one of Sweden's largest listed real estate companies with a property value of SEK 98 billion. We are active in 17 Swedish growth regions as well as in Copenhagen and Helsinki. Every day, 250,000 people go to work in our premises. We develop flexible workplaces and logistics solutions in close proximity to city centers and with a lettable area of 4.3 million square meters. One of our sustainability goals is to be completely climate neutral by 2030. Castellum is the only Nordic real estate company selected by the Dow Jones Sustainability Index (DJSI). The Castellum share is listed on the Nasdaq Stockholm Large Cap." - Yahoo

Real estate took a huge hit during the pandemic however what we can see is a huge recovery as Governments started to support the sector by reducing taxes on real estate.

However, what we can see in the past month is a potential triple top which means prices are starting to fall again and demand smoothing out.

This is the main indicator in the trade analysis that is going against the bearish bias.

Interest Rates Differentials

The interest rates across the two countries have been fairly flat, Mexico yielding higher rates to attract investors into the country due to the higher risk and volatility. This is the main reason why the interest rate differential is currently bearish.

Hedge Fund Positions

The hedge fund positions is one of the main players in the market which are looking to make money. They have a lot of liquidity and influence so it makes sense to track their overall positions to make sure we're trading with the markets and not against it as part of our analysis.

What we can gather from the above is that hedge funds are increasing their buy positions on the MXN and are maintaining their sell positions on the EUR.

Overall showing the sentiment of the market is bearish.