Mexican Peso Dodges US Tariffs. Forecast as of 05.02.2025
It is unclear whether Donald Trump is attempting to bargain for more benefits for the US or whether he really wants to reshape the international trade system. His words and actions have caused the USDMXN pair to fluctuate significantly. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The peso has been on a roller coaster ride due to US tariffs.
- Mexico will face recession if Trump’s threats are implemented.
- The White House intends to reduce the trade deficit.
- Long trades can be opened if the USDMXN pair breaks through 20.72.
Weekly Fundamental Forecast for Mexican Peso
Volatility is a key component of financial markets, driving price fluctuations that generate revenue for traders and investors. In this regard, the Mexican peso and Canadian dollar have recently faced a roller coaster ride, garnering attention in the Forex market. The USDMXN pair saw a 3% surge followed by a steep collapse, resulting in a profitable outcome for those who had opened long trades with the target of 21.2, switching to short trades thereafter.
The peso’s volatility is driven by the recent tariff announcement between Mexico and the US, with a last-minute delay until March 1. Claudia Sheinbaum managed to reach an agreement with the US president. However, one month might not be sufficient to tackle all the issues.
According to Bloomberg’s estimates, the introduction of 25% duties on imports, equivalent to $500 billion, poses a significant risk of recession in the Mexican economy, leading to a 70% reduction in jobs and exports to the US. This could further diminish the investment attractiveness of Mexico. The question arises as to whether it is financially feasible to establish new factories in Mexico to meet the needs of the US market.
US Tariffs’ Impact on United States, Canada, and Mexico
Source: Financial Times.
Of course, there are hopes that Donald Trump is bluffing. In anticipation of the renegotiation of the USMCA, the free trade agreement between North American countries scheduled for 2026, the White House is attempting to negotiate for greater concessions. Trump has a particular affinity for US stock indices, and any indication of a decline in the S&P 500 index is likely to temper his rhetoric. However, it is important to consider the possibility that Trump may have more ambitious plans to reshape global trade.
Despite Mexico and Canada successfully defusing the trade tensions by agreeing to new trade terms, it is evident that the White House’s trade policies are unrelated to an ally or non-ally status. As a dominant negotiator, Trump uses threats as a bargaining tactic, particularly against those he perceives as weaker. The initial countries affected by these policies are those with significant foreign trade surpluses with the United States.
US Trade Deficits
Source: Financial Times.
Claudia Sheinbaum noted that the US president had expressed a strong interest in the trade relations between the two countries. She stated that an agreement had already been reached to enhance competitiveness with China in the form of the USMCA. When Donald Trump asked about the duration of the proposed tariff suspension, the Mexican president responded with a firm “forever.”
Weekly USDMXN Trading Plan
Setting jokes aside, it is evident that Donald Trump intends to engage in negotiations, albeit it has not yet commenced. The deployment of 10,000 additional troops along the southern border of the United States is merely a modest initial step. The primary objective of the White House is to address the foreign trade deficit. Meanwhile, the peso’s gains are likely to be transient. If the USDMXN pair exceeds the 20.72 resistance level, one may consider locking in profits on short positions and open long positions.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of USDMXN in real time mode
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