Given today’s US bank holiday and lack of top-tier economic data, it’s not surprising that markets have seen a relatively slow start to the week. With world markets essentially closed for the day, European stocks closed a tick lower on the day while Asian stocks edged higher. This dichotomy stretched into the forex markets as well, where traders have seen a modicum of weakness in EURUSD and GBPUSD, contrasted against a thus-far-maintained bullish gap in NZDUSD. However, news that the Eurogroup’s discussions on a debt agreement for Greece are breaking down is extending the weakness in European assets (see my colleague Kathleen Brooks’ report, “Eurogroup to Greece: Stick to the Bailout or Else…” for more).
Turning our attention to emerging markets, markets are similarly tame. For the most part, the negotiated ceasefire in Ukraine is holding, decreasing geopolitical tensions in the region and lending some support to the Russian ruble. Indeed, most major EM currencies are essentially steady against the world’s reserve currency, including the Turkish lira, South African rand, and Singapore dollar.
In Focus: USDMXN
Looking ahead, perhaps the most interesting EM currency this week will be the Mexican peso, which features a series of significant fundamental and technical hurdles in the coming days. Though the start of the week is relatively devoid of economic data, things will pick up for the pair by midweek. Wednesday will bring PPI and building permits data, as well as the minutes from the most recent FOMC meeting, which are likely to reiterate the bank’s hawkish views, especially viewed the prism of the subsequent January NFP report. Thursday will give traders their latest look at Initial unemployment claims and Philly Fed data in the world’s largest economy, while Friday, investors’ attention will turn south of the border for a look and Mexico’s Q4 GDP reading (expected at 0.5% q/q, 2.2% y/y).
On a technical basis, USDMXN is still consolidating within its recent range from about 14.50-60 to 15.00. The 2-month consolidation has allowed time for the 50-day moving average to catch up with price. Meanwhile, the secondary indicators remain in bullish territory, with the MACD holding above 0 and the RSI maintaining above the 40 level that has served as support throughout the uptrend. If bulls can take the pair conclusively above 15.00 this week, a continuation toward the unit’s all-time high near 15.55 could be in play by midyear. On the other hand, a break below the 50-day MA and previous-resistance-turned-support at 14.60 would shift the near-term bias back to the downside for a potential retracement back toward 14.00.