USD/MXN: Downside potential remains limited - Rabobank
|Analysts from Rabobank, point out that the sensitivity of the USD/MXN pair to shifts in risk sentiment has faded and they see a limited downside potential in the pair.
Key Quotes:
“USD/MXN price action has been rather subdued in the aftermath of the Banxico decision on 9th February. As expected, the Bank elected to raise the policy rate 50bp to 6.25%. This was in line with the consensus although there were a significant minority of analysts calling for a smaller 25bp move.
“To our mind, the move from the 22 handle back down to below 20.50 was driven by a product of USD/MXN profit taking and a paring back of MXN shorts combined with general USD softness. Failure to break below the 100dma towards the 20 handle supports our view that while there has been some re-positioning in USD/MXN, the market is not bullish MXN.”
“We still expect USD/MXN to head higher again and see the potential for a break through the previous high of 22.0368 and as we have highlighted many times since the formation of a continuation triangle back in December, we see a high of 23.74 from a purely technical perspective and it would take a move below 20.13 to nullify that target.”
“The sensitivity of USD/MXN to shifts in global risk has diminished since the US Presidential elections. A look at the correlation between the VIX ‘fear’ index and USD/MXN shows this actually moved into negative territory at the end of last year.”
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