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Andreas Zanin
Analysis | October 29, 2020

Trading Risk Sensitive Currency Pairs – USD/MXN USD/SGD

Fundamentals, Sentiment and Technicals

29/10

We are expecting a move from risk on to risk-off and at present, the markets are discounting a V-Shaped global recovery and a landslide victory by Joe Biden and the Democrats in next week’s US election which we do not think will happen. Our view of the election is the result will be much closer than the polls suggest as per our previous Blog.

We think investors will become more risk-averse as we come into the election and the good news is discounted for many risk currencies. Two currencies that look good risk to reward sells v the USD are the MXN and SGD.

Mexican Peso

Many Mexicans expect to benefit from the continuation of globalization which would be the outcome of a Biden presidency. Mexico also has great demographics and will gain from being close to the USA a country that has a lot of capacity for fiscal stimulus and the willingness to use it. The MXN also has a good interest rate so if the majority view comes to fruition the MXN looks like an attractive buy. Our view is that in the short term the USD will rise on caution about the US election result which should see the USD rally and if we get a bigger move to risk-off this will accelerate USD gains.

Singapore Dollar

Singapore is a global trading hub and the second most sensitive currency to global trade and also has close links with China who is a major trading partner. A Biden presidency would be good for US-China relations but that’s discounted already and so too is a global V-shaped economic recovery. Just as with the MXN, we think the good news is priced in and USD buying is likely into the election and if we move to risk-off the USD will get an additional boost.

Technical Levels

Technical levels for the USD/MXN and USD/ SGD are on the charts below:

USD/MXN Daily Chart: The USD has moved up from daily chart lows, we are above the 20 day MA and volatility has increased. We see any pullbacks as buying opportunities to first level support. We expect a break of nearby resistance to trigger a move up to 23.00 and possibly 24.00 to correct the USD’s oversold condition.

USD/SGD Daily Chart: We have seen the USD move up from chart lows and above the 20 Day MA and now see any pullback as buying opportunities. If we move above yesterday’s high we expect follow through buying to the upside up to at least 1.400 and a probable run on to 1.4200 as the USD corrects its oversold condition.

 

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