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USD/MXN drops for the second day in a row as Mexican peso strengthens

  • The Mexican peso is the top performer on Wednesday, USD/MXN down 1.65%. 
  • Outlook for MXN still clouded, volatility likely to remain at extreme levels. 

The USD/MXN continues to correct lower. On Wednesday during the European session bottomed at 24.21, the lowest level since Friday. It then rebounded finding resistance at 24.65. As of writing, it is hovering around 24.40/45, down 1.65% for the day. 

The Mexican peso is the top performer on Wednesday among the most traded currencies. It is recovering ground for the second day in a row, after suffering a dramatic decline. USD/MXN is up 25% from a month ago. 

The improvement in risk sentiment boosted the demand for riskier assets. In Wall Street, equity prices are up again, after having the biggest daily gain in 87 years on Tuesday. The recovery of the Mexican peso so far is seen as a correction and not as a trend change. Volatility is expected to hold at extreme levels, with MXN expose to global sentiment and also to recent domestic evens. 

“Volatility is the highest in the decade (three-month implied volatility is above 25.5%, and one-month is near 38%). Using the volatility to a band around spot implies around a 75% probability that it is in a range of roughly MXN22.00-MXN28.50 pin one month and MXN21.50-MXN29.50 in three months. The risks are aligned to the downside for the peso, and given multi-dimension nature of the shock, a move toward MXN30-MXN35 is possible, especially if the virus spreads and is prolonged”, warns Marc Chandler, Chief Market Strategist, Managing Partner at Bannockburn Global Forex.

Technical levels 

 

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