Mexican peso and South African rand price forecast February 22 2020

2021-02-22

Forex held hostage by the Fed. Forecast as of 22.02.2021Dmitri Demidenko

For now, the Fed doesn’t even think about raising rates and curtailing QE policy, but what will happen when the central bank gets down to business? To answer this question, it makes sense to refer to the 2013 events. Let us discuss the Forex outlook and make up a trading plan for [USDMXN][1] and [USDZAR][2].

Monthly peso and rand fundamental forecast

Extrapolation is typical not only for technical but also for fundamental analysis. The recessions followed by the global economic recovery are serious food for thought. The dollar smile theory, a V-shaped stock market recovery, and a rally in Treasury yields have all occurred in the previous economic crisis. If so, the plan of action is known.

Currently, there are many analogies with the 2013 taper tantrum, when Ben Bernanke, the head of the Fed, provoked panic in the financial markets with his statement about the closing of the QE program. The yield on 10-year US bonds rose 125 bps from May to December, and risky currencies were actively sold off as carry traders flee. From June 2020 to February 2021, Treasury rates increased by 85 bps. Although the main reason for the rally is the belief in the recovery of the US and world economies, some patterns in the movement of exchange rates can be found this time.

7.5 years ago, the Australian and New Zealand dollars were affected the most among the G10 monetary units. While the euro, yen, and pound’s positions were stable. The first two assets, along with the US dollar, are the main funding currencies, so exiting carry trades makes it easy to explain the reasons for their success. Noteworthy is the weakening of the yen in October-December 2013 against the background of continued high global risk appetite.

USD price changes versus the G10 currencies after the Fed’s

statement about the QE tapering in 2013

Source: Nordea Markets.

Taking a broader range of assets, including emerging market currencies, the biggest losers 7.5 years ago were the high-yielding currencies with current account deficits of Central America, Asia, and Africa.

The reaction of major world currencies to the Fed’s statement about

the 2013 QE program curtailment

Source: Nordea Markets.

How can the presented research be used? There are two options. Wait until the Fed’s stance becomes hawkish, which most likely will not happen before the second half of this year. Or assume that the rally in Treasury yields is about to come to an end. Investors will understand that the rising debt market rates will not worry the Fed, which will continue to remain passive. As a result, May-December 2013 and June 2020-February 2021 outsiders can quickly turn into the main Forex favorites.

[USDMXN][1] and [USDZAR][2] trading plan for a month

First of all, we are talking about the South African rand and the Mexican peso. About 82% of Mexico’s exports go to the United States, and the US economy’s strong recovery will support the peso. South African exports are more diversified. The country’s main partners are world leaders in economics, China, Germany, and the US. In connection with the above, sell [USDMXN][1] on the rise to 20.95 and 21.06, and enter [USDZAR][2] short trades when the price rebounds from resistances at 15.1 and 15.27.

Price chart of USDMXN in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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