It's best to be prepared
Four-years ago on this day before the election, I posted a educational/technical post on risk and the USDMXN. I encourage you to read the post by clicking here.
Admittedly, it was a much more key currency pair at the time. Trump was focused on the wall and how horrible a trade deal NAFTA was. A Trump victory would be very bullish for the USD and very bearish for the MXN. He would be much tougher on trade and borders and that was considered bearish for the MXN (bullish on USDMXN).
On election day in 2016, the USDMXN fell below its 200 day MA at 18.397 (green line in the chart above). In the pre-results trading, the pair moved lower to 18.1452.
When the election results started to trickle in, and key states like Florida moved Trumps way, the price of the USDMXN soared. The high three days later reached 21.3726.
Since then the price has reached a low of 17.4462 in July 2017 and a high of 25.75748 in April 2020 (not shown).
Ironically currently, the price is not far from the high 3 days after the election in 2016 at 21.4700 (only 974 pips higher than that level). As a matter fact, the price today traded above and below that 21.3726 level (and also over the last 3 trading days). The prices at a happy and memorable place 4 years later.
So what about now?
Needless to say the NAFTA deal is now the USMCA. The highlights of the deal include:
• Creating a more level playing field for American workers, including improved rules of origin for automobiles, trucks, other products, and disciplines on currency manipulation.
• Benefiting American farmers, ranchers, and agribusinesses by modernizing and strengthening food and agriculture trade in North America.
• Supporting a 21st Century economy through new protections for U.S. intellectual property, and ensuring opportunities for trade in U.S. services.
• New chapters covering Digital Trade, Anticorruption, and Good Regulatory Practices, as well as a chapter devoted to ensuring that Small and Medium Sized Enterprises benefit from the Agreement.
The trade deficit with Mexico is about the same this year as it was last year (-68,420M vs -66,913M through August last year - for what it is worth). Time will tell if the impact is felt more down the road, but it is not expected that a Trump or Biden victory would change the details of the deal.
So what now in 2020 for traders?
First off, the volatility should be less, but there should be a bias depending on who wins.
The Pavlovian reaction of a Trump victory would likely be bullish for the USDMXN. Technically, there should be a move higher with a test of the 100 and 200 day MAs at 21.9448 and 22.0075 respectively (blue and green lines on the chart above) as the next key target. Move above each, and it should be more bullish with a topside trend line cutting across at 22.4900 area. The high from September reached 29.6957 and would be another upside target. The bias which it from bearish to bullish.
On the downside, a blue wave win, would likely keep the current bearish bias with the USDMXN pair moving down to - and likely through - the floor area near 20.8285.
Falling below the 20.8285 level would have traders looking toward the lower channel trend line at 20.5290 area. Move below that level and the door opens for more downside probing.
SUMMARY: The stakes were certainly higher in 2016 for the USDMXN. Generally speaking, a Biden victory is more favorable to international relations including trade. I am not suggesting that the USMCA will be dismantled, but at the very least, stress from a Pres. Trump tirade (wall, trade or both) will lessen and support the MXN over time. A Biden victory, meanwhile will likely give the MXN a boost (lower USDMXN), and have the pair breaking below September and October lows as the first hurdle.
