The Mexican peso has been attracting a lot of attention recently. The MXN currency has appreciated in value almost 15% vs. the U.S. dollar since last summer.
Continuous rumors on the possible rating upgrade from Standard and Poor’s over Mexico’s economy rating has brought a lot of confidence to a currency that has shot up more after the recent interest rate cut.
This news has affected many hedge traders that were long bonds and short peso, forcing them to unwind these hedges, something not seen in quite some time.
Foreign inflows of capital into Mexican’s economy have increased to an approximate of 80 billion dollars in 2012.
Let us not forget also that the peso is highly correlated to the local stock market. One our best references on Mexico’s equity market is the iShares MSCI Mexico Capped ETF (EWW), which is currently listed at $71.05, up almost 35% over 2012.
WEEKLY CHART
Based on a weekly chart on the USD/MXN cross, we can see a clear bearish pattern of multiple Head and Shoulders with a common neckline at 12.60 points, which has been broken these past few weeks.
The positive momentum on the MXN peso should take the cross to list below the 12.00 mark very soon, creating a new opportunity for forex traders.
BOTTOM LINE
Does the Peso still have some more room on the upside? I think so. Look for a move over the next year to 10.80 – 11.00 points, after breaking the 12.00 mark.
Mexico is an emerging market and their peso is not only an emerging currency but could become in the long term future a possible safe haven.
