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USD/MXN Extends Decline Due to a Dollar Post-Fed Hangover and Tests 19.80 Support

The US dollar is declining against the Mexican Peso for the eighth day in a row as investors digest the effects of the Federal Reserve’s relaxed stance towards cutting stimulus and fighting inflation.

The USD/MXN traded lower on Monday. The pair tested the 19.80 level as a continuation of the July 29 break of the dynamic uptrend support line from June 9. The dollar is currently trading at 19.8075 against the Mexican peso, down 0.38 percent.

Investors are still digesting the Federal Reserve‘s monetary policy decision made last week. According to the American central bank, the United States economy is doing well, but the progress is not significant enough to justify a tapering in the near future.

The dollar index extended its decline after the Federal Reserve’s announcement, and it is now trading around 91.98, down 0.11 percent on Monday. Previously, DXY traded at 91.78 on July 30, its lowest level in over a month.

Wells Fargo analysts predict that no taper announcement will be made before the end of December.

“We look for the FOMC to make a formal announcement regarding the tapering of its asset purchases at the December 14-15 meeting, and we expect that the Fed will begin the process of winding down its purchases early next year,” the bank said in a recent note. “But before that formal announcement is made, we expect that Fed officials will hint that tapering will be forthcoming.”

USD/MXN below the 200-day moving average

USDMXN daily chart

In nearly two weeks, the USD/MXN lost around 2 percent of value from July 21 high at 20.25 to August 2 provisional low at 19.80. The pair achieved some technical milestones in the route, building up a bearish case that could lead the unit to 2021 lows at 19.50.

After the Fed, the bearish sentiment in the USD/MXN has just grown up. Now, the pair looks ready to tackle down the 19.80 area and extend declines to 19.70-75. Below there, 2021 lows wait at 19.55.

All eyes are now focused on the current week’s employment report. If the number is below expectations, the dollar will fall, giving the Mexican peso more room to gain.