Over the past month we've had a bearish fundamental view of EURMXN, mid April we conducted analysis showing how the economic fundamental data started to show clear bearish signs. Fast forward over a month later and we've seen EURMXN plummet.
Since then the value of the EURMXN exchange rate fell from 21.59 down to 20.9.
It has now since had a slight bounce back, however, the fundamental data is still showing bearish signs.
Traders and investors should keep their eyes on this in the coming month as we move into June as new data may unfold either another set of bearish ideas or a potential swing to the upside.
What we've identified on the technology summary page is a huge confirmation that the major economic indicators are signalling bearish alarms.
Macro currency strength meter
Interest rate differentials
Hedge fund positions
All these factors are showing bearish signs meaning, will the downwards trend continue as per last analysis?
Or will we see an upwards tick in the coming month...
For now, we can assume the downwards trend is likely as in the past week we saw Europe release even further bearish fundamental data which saw the EUR fall.
Macro Currency Strength Meter
The macro currency strength meter is our main fundamental indicator which helps is gauge the fundamental direction of economies and thus currencies.
What we've identified over the course of the past couple months is a weak EURO and a strong MXN.
This has been reflected in the price action of EURMXN over the past 2 months with EURMXN falling significantly over this period.
What we're seeing now is a continuation of bearish economic data...
However, one point we need to watch out for is, how long will bearish data continue to be released? Are they really having it that bad?
I guess with the conflict on-going in Ukraine and continuous energy risks from Russia could have unforeseen inflationary impacts on the Euro as Europe is one of Russia's biggest customers of Oil and if they were to switch this off well... there may have huge consequence for the people.
The GDP differentials is our long term economic indicator, the International Monetary Fund releases yearly forecasts which we grab and put onto a nice line chart for our users.
In this case we can see the forecast for 2023 is looking bearish for EURMXN as the Euro dives in growth rates at a rapid pace.
Overall, GDP differentials also agrees with the bearish sentiment we're seeing.
Trade Analysis (Imports & Exports)
One of the indicators we're using for the trade analysis is oil... and in this case WTI.
The WTI is a barometer in the price of crude oil, this is highly traded throughout USA and USA being a huge trade partner with Mexico it makes sense why there's such a huge negative correlation between EURMXN and WTI.
WTI prices have been climbing which isn't a surprise, if you're driving a car you probably know your local gas/ petrol station prices have sky rocketed!
This increase in prices of WTI has a negative correlation meaning as the prices rise which it has, the price of EURMXN falls.
The recent price growth in WTI suggests EURMXN is in for another bearish run.
Volkswagen as many of you know is a very large and popular car manufacturer, with many big fans of the vehicles!
Since it's one of Europe's largest exporters of vehicles it makes complete sense that it has such a strong correlation between EURMXN.
Over the past 6 months VW prices took a hit at a very similar rate to EURMXN...
It's now recovering slightly but overall it hasn't corrected by 50%. Important to keep an eye on this one as any bearish signs in VW could quickly see a reaction in EURMXN.
"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." - Investing.com
What we've gathered over this year so far is that.. it's not doing so very well and it's following a very similar path to EURMXN.
As the price of Castellum has fallen, so has the Euro.
Although this is a Swedish company it seems to have an underlyingly strong positive correlation with EURMXN.
In this case we're seeing a slight recovery in the company's prices however this has not been reflected in the price of EURMXN yet.
Interest Rate Differentials
The interest rate differentials have been very stagnant the past 10 years...
However, now that the pandemic has hit, there's been global uncertainty and countries and monetary authorities have had to print money, reduce taxes and support their people.
Now that countries are now recovering from the outbreak we're seeing a huge increase in inflation across the board, one way to combat this rising inflation is increasing interest rates which Mexico has introduced, they've increase their rates year on year since 2020 making it an attractive currency to earn interest on.
This is very bearish for EURMXN as it shows investors may prefer to collect interest on their currency with a higher interest rate.
Hedge Fund Positions
The hedge fund positions have had a bearish open interest overt the past 3 months now.
It hasn't changed either and with the reflection in the price of EURMXN it shows how powerful fundamentals have been in the 3 months.
Over the past 3 months we can see a very clear downwards trends which doesn't seem to be stopping anytime soon...
I'd keep an eye on any bearish technical signals which may be forming right now.