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Technical Analysis: EUR/MXN

Published 07/31/2019, 07:22 AM
Updated 12/18/2019, 06:45 AM

Getting ready for significant data and events

US Fed and Bank of Mexico are going to cut rates. Will the EUR/MXN quotations grow?

This movement occurs with the strengthening of the euro and the weakening of the Mexican peso. On July 31, 2019, the Fed meeting will take place, at which the rate is expected to decrease by 0.25% to 2.25%. Market participants believe that the US regulator will not stop at this and will continue easing monetary policy. The last time the Fed lowered the rate in November 2008, at the height of the global economic crisis. Recall that the current level of the American rate is 2.5% with annual inflation of 2.1%. Its decline can weaken the dollar and strengthen the euro. The next meeting of the ECB will be held only on September 12, 2019. Eurozone GDP data for the second quarter and preliminary inflation for July may affect the dynamics of the euro. They will be released July 31, 2019. On the same day, Mexico’s GDP for the 2nd quarter will be published. The next meeting of the Bank of Mexico will be held on August 15. Theoretically, it can reduce the rate, which is 8.25% with inflation of only 3.95% in annual terms. Mexican President Andres Manuel Lopez Obrador said that the Bank of Mexico needs not only to control inflation but also to accelerate GDP growth. In his opinion, low lending rates could support this process.

EURMXN D1 Chart

On the daily timeframe EUR/MXN: D1 rose to the resistance line of the downward trend. Various technical analysis indicators formed signals for improvement. Further growth of quotations is possible in case of positive macroeconomic news in the EU and negative - in Mexico.

  • The Parabolic indicator shows a lower signal. It can be used as an additional resistance level that must be overcome before opening a buy position.
  • The Bolinger bands® narrowed, indicating low volatility. The bottom line of Bollinger has a slope up.
  • The RSI indicator is below 50. It has formed a divergence to the increase.
  • The MACD indicator gives a bullish signal.

The bullish momentum may develop if EUR/MXN will exceed the upper Bollinger line, the Parabolic signal and its last upper fractal: 21.6. This level can be used as an entry point. The initial stop lose may be placed below the last lower fractal and the lower Bollinger line: 21. After opening the pending order, stop shall be moved following the signals from the Bollinger and Parabolic to the next fractal minimum. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place a stop-loss moving it in the direction of the trade. If the price meets the stop level (21) without reaching the order (21,6), we recommend to cancel the order: the market sustains internal changes that were not taken into account.

Technical Analysis Summary

Position

Buy stop

Above 21,6

Stop loss

Below 21

Market Overview

Equities slip ahead of Fed rate cut decision

US stocks pull back as Trump warns China against waiting for US elections

US stock indexes pulled back on Tuesday as President Trump tweeted China may be waiting to see if Democrats win election but warned that “if & when I win, the deal that they get will be much tougher than what we are negotiating now...or no deal at all.” The S&P 500 lost 0.3% to 3013.18 with mixed corporate reports providing little support. Dow Jones industrial slipped 0.1% to 27198.02. The Nasdaq lost 0.2% to 8273.61. The dollar strengthening paused ahead widely expected Fed decision of a 25 basis point rate cut today while core personal consumption expenditure index increased at previous month’s pace of 0.2% over month in June: the live dollar index data show the ICE (NYSE:ICE) US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, gained less than 0.1% to 98.06 but is lower currently. Stock index futures point to higher market openings today

DAX 30 leads European indexes losses

European stocks ended sharply lower on Tuesday undermined by weak earnings reports and renewed US-China trade war concerns after President Trump hardened his rhetoric in tweets. The EUR/USD continued its climb with GBP/USD’s slump intact yesterday but both pairs are higher currently. The Stoxx Europe 600 ended 1.5% lower. The German DAX 30 dropped 2.2% to 12147.24 dragged by Bayer (DE:BAYGN) and Lufthansa losses while GfK reported German consumer confidence fell third consecutive month. France’s CAC 40 fell 1.6%. UK’s FTSE 100 lost 0.5% to 7646.77.

DE30 D1 Chart

Hang Seng paces Asian indexes retreat

Asian stock indices turned lower today as President Trumps warned China that any deal after 2020 election would be much tougher after he is re-elected. Nikkei lost 0.9% to 21521.53 as yen climb against the dollar slowed. Chinese stocks are falling as data showed China's factory activity contracted again in July: the Shanghai Composite Index is down 0.7% and Hong Kong’s Hang Seng index is 1.2% lower. Australia’s All Ordinaries Index fell 0.5% as Australian dollar’s climb against the greenback resumed.

Brent rising as US crude oil inventories drop is expected

Brent futures prices are edging lower today. The American Petroleum Institute late Tuesday report indicated US crude inventories fell by 6 million barrels last week. Prices rose yesterday: October Brent gained 1.6% to $66.63 a barrel on Tuesday. Today at 16:30 CET the Energy Information Administration will release US Crude Oil Inventories.

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