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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.”

Author

Matías Salord

Matías started in financial markets in 2008, after graduating in Economics. He was trained in chart analysis and then became an educator. He also studied Journalism. He started writing analyses for specialized websites before joining FXStreet.

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