USD/MXN rises to 2-week high as Mexico unemployment rate falls

Written by: Crispus Nyaga
January 25, 2021
  • The USD/MXN pair rose today because of the overall stronger dollar.
  • The Mexican unemployment rate fell to 4.4% in November.
  • This happened as the economic activity rose by 0.9%.

The USD/MXN pair rose today even after the relatively strong economic numbers from Mexico. It rose by 0.50% to 20.0365, which is the highest it has been since January 12.

USD/MXN price action

Mexico positive numbers

The Mexican economy is showing signs of recovery according to the latest data by the country’s statistics bureau. The data showed that the unemployment rate dropped to 4.4% in November, continuing a trend that started in April, when the rate rose to 5.40%. The unemployment rate has dropped for about 6 consecutive months.

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This performance is possibly because of other numbers released today. The bureau said that economic activity rose by 0.9% in November after rising by 1.20% in the previous month. The activity fell by 3.90% on an annualised basis. 

Economists believe that this performance is mostly due to the overall US recovery and the stimulus offered by congress. There tends to be a strong correlation between the US economic activity and that from Mexico. That’s because the US usually buys goods worth more than $300 billion every year.

Another contributing factor is crude oil price. As one of the leading oil exporters, Mexico tends to benefit from high oil prices. In the past few months, the price of oil has moved from below zero to almost $60. That has led to Mexican oil companies to employ more people.

The USD/MXN is also rising because of the overall strong US dollar. The dollar index has risen to the highest level in about two weeks because of the stimulus and coronavirus-related risks. In the US, there are questions about whether Congress will be able to pass the $1.9 trillion package proposed by Joe Biden. Such stimulus will be positive for the Mexican economy. 

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USD/MXN technical analysis

USD/MXN technical chart

The daily chart shows that the USD/MXN pair has been in a general bearish trend in the past few months. In fact, it has fallen by more than 20% from its highest level in 2020. In the past few weeks, the pair has formed a declining channel pattern that is shown in blue. 

It has moved above this channel today. It has also moved slightly above the 25-day and 15-day exponential moving averages. Therefore, in the near term, the pair will likely continue rising as bulls aim for the next resistance at 20.20.