USD/MXN: Chart patterns point to more Mexican peso retreat

The Mexican peso has retreated slightly in the past few days as the recent rally takes a breather. The USD/MXN exchange rate was trading at 17.14 on Monday, a few points above last week’s low of 16.65. This price is ~22% below the highest level in 2022.

Mexican peso vs US dollar

The Mexican peso has been one of the best-performing currencies this year. It has soared by more than 15% against the US dollar as investors remain optimistic about the Mexican economy.

Mexico is benefiting from the relatively elevated crude oil prices. Brent jumped to $87 on Monday while West Texas Intermediate (WTI) is trading at $84. Some analysts believe that crude could hit $100. 

Most importantly, the Mexican economy is rebounding because of its proximity to the United States. Many American companies are moving their operations to Mexico from China. 

Others are taking advantage of the USMCA to move from the US to Mexico. For example, Stellantis, one of the biggest US automakers has warned that it could move most of its operations to Mexico if it fails to reach a deal with the unions.

Recent data shows that Mexico has overtaken China to become America’s biggest trading partner. This trend will continue as companies de-risk from China as the Taiwanese challenge remains.

A report published on Monday showed that the country’s gross fixed investments rose by 3.10% in June. This translated to a year-on-year increase of 28.80%.

Therefore, there are two main reasons why the USD/MXN pair has risen in the past few days. First, data from Mexico revealed that the economy grew at a slower pace than expected in Q2. It expanded by 0.8% from the previous quarter,.

The USD/MXN has also risen because of the strength of the US dollar. The dollar index has risen from below $100 to $104, signaling that there is demand for the currency.

USD/MXN technical analysis

The USD/MXN pair has been in a strong bearish trend in the past few months. Most recently, however, the pair has formed a double-bottom pattern at 16.6415. In price action analysis, this pattern is one of the most bullish signs.

Before the double-bottom formed, the pair had created a falling wedge pattern, which is another sign of a bullish reversal. It is also consolidating at the 25-period and 50-period moving averages.

Therefore, the pair will likely have a bullish breakout in the coming days. If this happens, the next key level to watch will be 18.