Andrés Manuel López Obrador (AMLO) notched the Presidency of Mexico, but how did traders react?
AMLO scored an expected victory in the Mexican Presidential Election, which shifts the political and economic discourse and direction of Mexico in a significant fashion. There has not been such an electoral shift in a country since the Election of Donald Trump to the Presidency of the United States of America. The Mexican people have sent a message to those in power and to the United States. Whether it is for the better is completely unknown, but traders have let their sentiments become known.
The temper tantrum punishing the Mexican Peso appears over… for now.
U.S. Trade Wars and acceptance of the AMLO Presidency have strengthened the Mexican Peso against the U.S. Dollar.
The surge in U.S. Dollar strength started in April 2018 and ended in mid-June 2018. This was mentioned before and the recent dropoff in strength in the U.S. Dollar does appear to be a premature buy the rumor, sell the news sort of a situation. The inevitability of an AMLO Presidency has provided some level of consistency, but the fact that there has not been a strong enough decline in USDMXN and the fact that the price has entered into support may mean that it could bounce back.
Let’s pull up another way of looking at the USDMXN chart.
The back-to-back Demand Zones on the USDMXN Daily Chart make for very strong Support with the 200 SMA below both of them currently. This will rise up further and provide a stronger Support. If the price opens below the 50 SMA, it is either going to be a consolidation zone like the First Quarter or it is setting up a return to pre-AMLO market panic.
The next Demand Zone is at 19.46 for USDMXN. Whether it gets to that level is unknown, but right now traders seem to have not panicked in response to the election.
A Different Way to Think About It
The Election of AMLO needs to be viewed in a different light because this was an expected outcome with an unexpected and unpredictable candidate. The realization that AMLO would be President caused the upswing and the acceptance of this matter took place in mid-June 2018. The question is when the sell-off ends and whether AMLO gets full Congressional support.
A bounce-back takes place if AMLO does get that frictionless legislature or if there are immediate hostilities between himself and President Trump. The USDMXN drop would take place if AMLO has some friction or if the expected hostilities are an anticipated media fever dream.
Mexico’s issues with the woes of Honduras, Nicaragua, El Salvador, and Honduras should only impact the markets if they have to do with any sort of international relations (United States) or impact the business environment of Mexico.