Introducing USDMXN
The USDMXN is made up of USD and MXN. The USD stands for United States dollar and is the national currency of the United States. The MXN stands for Mexican peso and is the national currency of Mexico. Together, they form the USDMXN currency pair. This currency pair is an exotic currency pair due to Mexico still being a developing country and placed beside the US. It is also the ninth most popular exotic currency pair in the forex industry. The reason why the USDMXN currency pair is so popular is being both of these currencies are individually very correlated to each other. They almost depend on each other for survival in times of need. The MXN has significantly higher interest rates than the USD which makes it an excellent currency pair to perform carry trading as well.
The United States Dollar
Although the introduction of the dollar is not required, it would be impolite not to do so. The US dollar, abbreviated as the USD, is the world’s most actively traded currency. It is the most common currency and is commonly used as a reference currency for all monetary evaluations. This money is issued by the Federal Reserve Bank, or “Feds,” as they are more often known.
In 1862, after they ran out of coins to pay for the Civil War, the first paper dollar was manufactured. The USD is now widely accepted as a means of payment in many financial markets throughout the world. Many countries have altered their currency to become dollars as well in order to improve relations with this major superpower. These countries include New Zealand, Canada, and Australia. Since the USD is the most widely used currency all over the world, it is impacted by any major economic event that happens anywhere in the world.
The Mexican Peso
The Mexican peso is abbreviated by MXN in the forex space. It is the national currency of Mexico. The term peso means weight and originated from its use with gold and silver weights. It also originated from the term being first used in relation to Spanish origin. In 1863, the first Mexican coins were produced which were called centavos and 100 coins were worth one peso.These coins used to contain gold as well but the gold contents of the coin were significantly reduced over the years. In the 1980s, Mexico was facing a huge oil crisis. Due to this crisis, their currency was significantly devalued. As a result, in 1933, the Mexican government created a new type of peso for Mexico. It was called the nuevo peso and it replaced the old peso.
Why Trade USDMXN
The USDMXN is one of the most popular exotic currency pairs in the forex industry. They are quite popular due to the unique market conditions they present to traders. Here is why you should trade the USDMXN:
Exotic Currency Pair
The USDMXN is an exotic currency pair. An exotic currency pair refers to a pair that contains the currency of the US as well as the currency of a developing country. The United States is paired with Mexico in this scenario to form the USDMXN currency pair. An exotic currency pair brings unique trading conditions to the forex space. Major and minor currency pair market movements can get quite boring to watch all the time. Trading exotic currency pairs is how traders spice up their trading routine. The USDMXN is among the most popular exotic currency pairs on the market and are quite interesting to trade as well.
Interest Rates
Mexico is known for its high interest rates provided by the Mexico Central Bank. These high interest rates are even greater than some of the market leaders such as the U.S., U.K., or even Japan. Due to these high interest rates, traders are attracted to the USDMXN currency pair due to its high interest yields. The reason this pair has high yields is due to the fact that their interest rates have a great difference between them. The USD has significantly lower interest rates than Mexico. Due to these high yields, a carry trade is the popular move used by traders when trading this currency pair. Carry trading refers to selling a currency with a low interest rate to buy one with a higher interest rate.
Market Volatility
The USDMXN is an exotic currency pair. Due to this reason, it faces quite different market conditions than most of the other currency pairs. The USDMXN enjoys very steady market conditions most of the time. This is mostly due to Mexico not having many major economic events. It does, however, exhibit instability on occasion when a major event does eventually happen. The great part is that these moments of volatility are extremely predictable. This indicates that experts are already ahead of the dynamic duo and can predict when this currency pair will exhibit volatile market circumstances. As a result, the USDMXN is quite popular among scalpers, who take advantage of these periods of volatility to make a fast profit.
USDMXN Trading Tips
As discussed above, the USDMXN presents some unique market conditions which make most traders eager to trade this pair. But unique market conditions also need some great trading strategies in order to trade successfully. Here are some top tips for trading USDMXN:
Pullback Trading
Pullback trading occurs when the market temporarily deviates from its trend, allowing you to enter the market at a low cost. When trading a pullback, you must first determine when the market will pull back. If USDMXN is in an uptrend and momentarily breaks and falls little, you have a chance to join the market at a reasonable price with a BUY transaction. Similarly, if the market is in a downtrend and temporarily breaks and climbs significantly, you have an opportunity to enter the market via a SELL trade at a decent price. As a result, this is a basic yet successful approach for the USDMXN currency pair.
Range Trading
Range trading is when you use support and resistance levels to determine when to enter a trade. The highest points in a particular chart are the resistance levels. Similarly, the support levels in a particular chart are the lowest points. Understanding the location of these highs and lows is critical to the range trading approach. For example, if the price is reaching a resistance level and you feel it will hold, you might enter into a SELL transaction. If, on the other hand, the price is approaching a support level that you feel will hold, you may perform a BUY transaction. If the price continues to fall below support, you can enter a short position because the support level will no longer be valid. Similarly, if the price continues to rise over the resistance level, you may go long because the resistance level will no longer be valid.
Carry Trading
Trend trading is the use of market movement patterns to determine when to place the order. Trends are easily noticeable, especially when looking over longer durations. The most typical patterns to watch for are when the market moves steadily higher or even downwards. An upward trend may be observed when the highs are rising and the lows are rising as well. Similarly, a downward trend may be observed when the highs are falling and the lows are falling as well. As a result, you may spot trend patterns in USDMXN and hence do trend trading in this manner.
Factors Affecting USDMXN
Since the USDMXN currency pair contains the USD it has quite a lot of factors that could impact its trading conditions. But since it also contains the MXN, it is an exotic pair that has a low trading volume. Here are the top factors impacting the USDMXN:
Gross Domestic Product
The Gross Domestic Product, or GDP, measures a country’s total economic performance. It is a significant contributor to the fluctuation of the USDMXN pair. A positive GDP figure indicates that the economy is doing well. This, in turn, would entice investors to invest in the country’s economy, increasing the value of that country’s currency. If the US experiences a positive GDP, the US Dollar will rise in value, causing the USDMXN to rise in value as well. In the case of the Mexican peso, the reverse is true. If Mexico had a positive GDP, the MXN would rise in value, causing the USDMXN to fall in value.
Financial Institutions
Both the Federal Reserve Bank and the Mexican Central Bank are majorly responsible for any instability in the USDMXN marketplace. The FRB and MCB release monthly reports and statements regarding updates to any policy changes. These reports also display the economic and monetary forecasts for the upcoming short-term.
Any positive results from the FRB will have a positive impact on the USDMXN currency pair. However, any positive results from the MCB will have an inverse impact on the USDMXN currency pair. The representatives of these individual banks also hold speeches frequently where they explain these results in more detail. These speeches are just, if not more, important in determining the direction of the USDMXN market. From FRB, Jerome Powell who is the Chairman of the institution is highly looked upon for his speeches. From MCB, Victoria Rodríguez Ceja who is the Governor of the institution is highly looked upon for her speeches.
Unemployment Rate
Unemployment is a significant contributor to a country’s economy. When a person is jobless, the government bears the task of providing basic essentials for their existence. As a result, the greater the number of jobless individuals, the greater the responsibility on the government to spend its reserves to care for the unemployed.
The greater the unemployment rate in the United States, the worse the country’s economy will be. This, in turn, would lead the USDMXN to lose value. Similarly, if the unemployment rate is low, the economy will thrive, and the USDMXN will rise in value.
The Crude Oil Industry
Mexico is among the largest producers and exporters of valuable commodities such as crude oil. Therefore their economy greatly depends on the export of these energy resources in order to thrive and increase in value. Any changes to the market for these commodities such as demand or prices will have a direct impact on the USDMXN pair.
If the demand for crude oil increases, Mexico will export them more often, and therefore, USDMXN will decrease in value. If the demand for gold decreases, Mexico will suffer as they wouldn’t be able to export them as much, and therefore, USDMXN will increase in value. This can be seen during an economic crisis like the war in Ukraine where the world was facing a shortage in crude oil supply.
The Auto Vehicle Industry
Mexico is among the largest producers and exporters of valuable commodities such as auto vehicles and its parts. Therefore their economy greatly depends on the export of these auto equipment and transport vehicles in order to thrive and increase in value.
Any changes to the market for these commodities such as demand or prices will have a direct impact on the USDMXN pair. If the demand for auto vehicles increases, Mexico will export them more often, and therefore, USDMXN will decrease in value. If the demand for auto vehicles decreases, Mexico will suffer as they wouldn’t be able to export them as much, and therefore, USDMXN will increase in value.
The Aerospace Industry
The US is among the largest producers and exporters of airplanes and their parts. Therefore their economy greatly depends on the export of these products in order to thrive and increase in value. Any changes to the market for airplanes such as demand or prices will have a direct impact on the USDMXN pair. If the demand for airplanes increases, the US will export them more often, and therefore, USDMXN will increase in value. If the demand decreases, the US will suffer as they wouldn’t be able to export them as much, and therefore, USDMXN will decrease in value.
The Ship Industry
The US is among the largest producers and exporters of boats, ships, and their parts. Therefore their economy greatly depends on the export of these valuable commodities in order to thrive and increase in value. Any changes to the market for these products such as demand or prices will have a direct impact on the USDMXN pair. If the demand for boats increases, the US will export them more often, and therefore, USDMXN will increase in value. If the demand for boats decreases, the US will suffer as they wouldn’t be able to export them as much, and therefore, USDMXN will decrease in value.