USDMXN Analysis (Sept, 2021)
The United States has been one of the countries next to the United Kingdom with a strong vaccination programme to help the country release itself from endless lockdowns.
The jobs market has bounced back strongly with the Federal Reserve even hinting at potentially increasing interest rates and cutting the stimulus program as soon as November if inflation gets out of control.
Traders should keep an eye on this as it can go both ways, a cut in stimulus and rising interest rates would be deflationary which creates a rising dollar value.
What we've found across the analysis is interesting early bearish fundamental data suggesting the downwards trend on USDMXN may continue in the coming months.
Logikfx Technology Summary
Overall, the technology summary page is showing traders early signs of a bearish movement. However, there's no current confidence in this and at this point it's extremely speculative.
Main reason being the macro currency strength meter is still at a neutral level.
On the other hand, the GDP differentials, Interest Rate Differentials and the Hedge Fund positions are starting to look bearish which suggests will future fundamental data drag this trend down further or will the Federal Reserves actions create a bullish reversal.
Gross Domestic Product Differentials
The Gross Domestic Product differential indicator that's part of the Logikfx Technology web stack helps traders gauge what direction a country is heading in terms of total output. In this case what we're seeing is the United States outgrowing Mexico over 2021 and 2022.
The green differential line overall shows the trend of how much each country is growing if we compare the above green line over the past 10+ years you can see how they're correlated. When the green differential line is rising above the 0 level USDMXN rises and vice versa.
The current trend is suggesting USDMXN is still expected to fall throughout 2022 as the GDP growth rates tighten.
Trade Analysis (Imports/Exports)
Exxon Mobil is a key company to analyse considering oil is a major commodity traded within the North American Free Trade Agreement (NAFTA) between the United States, Mexico and Canada. In this case we can see a negative correlation of over 50% which shows as Exxon prices fall USDMXN tends to rise.
The most recent data releases show Exxon Mobil prices rising which shows in the price as USDMXN falls.
Overall, agreeing with a potentially early bearish sign on USDMXN.
Use the forex statistical calculator above to gauge the correlation between two assets or instruments.
General Motors is another company analysed which is a different industry but still a major export in the United States. Cars account for a huge portion of United States exports and GM being one of their largest car manufacturers.
In this case what we've seen is 45% of the time there's a positive correlation between GM and USDMXN.
The most recent data shows GM prices rising which suggests actually there may be some bullish sentiment.
So far, Exxon shows a bearish bias and GM shows a bullish bias.
Lets see the final commodity which is crude oil prices WTI to see which sentiment we're leaning towards.
Crude oil WTI prices shows a huge negative correlation against USDMXN. In this case you can see between 2014 and 2016 as WTI prices dipped USDMXN started a huge upwards trend. The same relationship held true when WTI prices dipped to nearly $15 this saw USDMXN spike significantly in the same period which shows how volatile yet strong the correlation is.
The most recent data is showing WTI prices recovering from the dip seen in early 2020 reaching new highs. This combined with the negative correlation would suggest a downwards movement is imminent on USDMXN.
Overall, the interest rates are another economic indicator used within the analysis. The Federal Reserve which is the United States monetary authority sets the interest rates and over the past 12 off years since the financial crisis the interest rates in the United States have been ultra low. In comparison Mexico's interest rates have been fairly high to try and attract investors which could yield higher returns on their Mexican Pesos.
This suggests a bearish bias due to the ultra low interest rates means investors would prefer to hold MXN rather than USD based on interest rates alone.
Overall the stock market and more specifically the US stock market (S&P500) has grown significantly over the past 6 months. What we've found is that the recent dip in prices is slightly bearish overall for USDMXN which comparing both the stock market against the exchange rate.
If the S&P500 priced in MXN continues to fall this would be a bearish confirmation signal.
Hedge Fund Positions
Overall, the hedge fund open interest has been positive for both USD and MXN. The positive open interest equates to hedge funds purchasing more of the instrument. In this case hedge funds are buying both the USD and MXN so there's no real indicator to what hedge funds are doing.
What we'd like to see is the solid blue line for USD to be below zero and falling, this would create an overall bearish sentiment for USD meaning we wouldn't be traded against the market and we'd be trading with it.
Currently, no real market sentiment bias.
Make your own COT indicator using the template below and following the COT indicator tutorial.
Price trends
What we can see in price action over the past year is prices have started to congest since the initial dip towards the end of 2020. We've highlighted some key levels where sellers came in to push prices lower.
It would be wise to keep an eye no these key levels for any price action which could be seen as bearish.
