USDMXN Trade Analysis (March,2021) $1.9 Trillion Government Package

Traders there's been interesting news over the past couple weeks regarding the United States.

Most of you will have heard about how most of Texas and other parts of the country were hit with freezing weather...

Well, this has actually shown in the overall data in the US economy with consumer spending dropping by 1%.

The cold weather that hit the country in the tail end of the winter season caused massive issues in not only consumer spending but the likes of construction and manufacturing.

The economists are expecting spending to "rebound" as weather starts to pick back up and become warmer going into spring. On top of this the vaccination programme will start taking effect. - CNBC

Will this spending stir inflation and a bearish outlook on the dollar?

Let's find out.

Fundamental Overview - Bearish

1. Macro Currency Strength Meter - bearish

2. Gross Domestic Product Differentials - bullish

3. Trade Analysis (Imports/Exports) - bearish

4. Interest Rate Differential Analysis - bullish

5. Domestic Stock Market Analysis - bullish

6. Hedge Fund Positioning - bearish

7. Price trends - bearish

Macro Currency Strength Meter

Always starting the analysis off with the currency strength meter and boy have we seen an interesting shift in the fundamentals!

What we've noticed over the past month or so is that USD is slowly starting to get a bit weaker, this week hitting the breaking into the negative economic region.

On the flipside MXN and Mexico have seen some bullish news, data and reports released in the past week.

What this has created is a "Currency Strength Meter Crossover".

These are fundamental signals on the currency strength meter that there might be a potential turn of events coming soon and you really need to keep an eye on it.

If you ever used a MACD indicator and seen the crossovers, think of it like this but 10x more powerful as it uses economic data rather than historical price!

What's happened is USD is bearish and MXN bullish creating an overall bearish stance from a domestic fundamental view for USDMXN.

Gross Domestic Product Differentials

Overall, GDP Differentials were bullish.

The United States are expected to grow faster than Mexico by 1% so not much to say here as it goes against our idea.

One to consider as new data comes out quarterly these are likely to be updated forecasts soon as the IMF reassess their numbers.

Trade Analysis (Imports/Exports)

The trade analysis was really interesting.

Overall, we had indicators signalling both bullish and bearish signs but overall it looked like a bullish outlook to me.

Above you can see the USDMXN exchange rate vs WTI crude oil prices.

The relationship is pretty much there, it's a negative one, a mirror almost!

There was very slight growth in WTI giving it a very slight long bias on USDMXN.

General Motors (GM) was considered due to the high exports in both Mexico and US on cars.

Cars are always a big manufacturing product, makes sense as it makes lots of money!

General Motors (GM) had a 41% positive correlation against USDMXN over the past 11 years.

Recently GM has had a huge surge in price almost triple in value since the dip due to the pandemic in March.

This is a strong bullish sign which is why overall the trade analysis is bullish and goes against our bearish view from the currency strength meter.

Exxon Mobil was another WTI related export that US and Mexico trade between each other.

This time round Exxon had a strong negative relationship against USDMXN sitting at -51% meaning over half the time as Exxon prices fell USDMXN rose and vice versa.

What's been happening recently?

Exxon prices are surging, this should be a strong bearish sign for USDMXN if you were to only consider this.

However, due to the other indicators what we want to be doing is keeping an eye on them to see if they turn bearish in the coming weeks...

Interest Rate Differential Analysis

Interest rate differentials are showing bearish signs which is great.

This aligns with our currency strength meter outlook as it seems the Mexican peso interest rates are holding strong and thus becoming a more attractive currency to hold for investors.

On the flipside the US interest rates seem to be stuck near zero making them not very attractive as investors aren't really going to make any interest on their dollars!

Domestic Stock Market Analysis

The domestic stock market performance can be seen strong here.

It's overall looking very bullish which is weird considering the lockdowns and businesses having to close.

The Government stimulus is really getting utilized here but how long can this artificial environment last?

The indicator looks bullish which is why it goes against our original bearish idea.

Comment below your thoughts, as to me a dip is coming...

Hedge Fund Positioning

Hedge funds are the big boys in the market, they can push price nearly how they want due to the sheer volume they can pump into the markets.

So...

What are they thinking?

Overall, on the COT indicator we can identify that hedge funds are selling the US dollar and buying the Mexican Peso!

This is a bearish sign for USDMXN which is great as this is aligns to our currency strength meter outlook too.

Price trends

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Now, getting back into the analysis we are on the final step which is price...

The price of USDMXN has been bearish for the past few months.

Buyers have not been in control at all and have broken all signs of support.

Using this data we've considered the price trends to be bearish which is a good sign for our USDMXN idea as that means sellers are in motion and this could be a potential bearish trend in the making.

Drop the analysis and like below if you found it useful, comment below and ideas you might have or want a fundamental analysis review on! - Matty C, Logikfx

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