Triple-top pattern forms ahead of Fed decision

The USD/MXN exchange rate has formed a triple-top pattern as traders position for the upcoming interest rate decision by the Federal Reserve. The pair was trading at 18.61 on Wednesday, slightly lower than this week’s high of 19.16.

Federal Reserve decision 

The Mexican peso has been one of the best-performing emerging market currencies in the world. It has jumped by more than 15% from its lowest point in 2022 even as other EM currencies like the Turkish lira and South African rand have plunged. 

The Mexican peso has risen because of the ongoing reshoring by American companies as they move from China. The belief is that moving to Mexico will provide them with relief as tensions between the US and China intensify. This is important since the US is Mexico’s biggest market. 

The USD/MXN price has also retreated in the past 12 months because of the relatively elevated crude oil prices. For the most part of the year, oil prices remained above the key resistance point at $80. This is notable because Mexico is a leading oil producer. 

The USD to MXN exchange rate will next react to the upcoming Mexico aggregate demand data. Economists believe that the aggregate demand dropped to 4.10% from the previous 6.40%. The impact of this report on the pair will, nonetheless, be minimal. 

The most important catalyst for the pair will be the upcoming Federal Reserve decision. Economists polled by Reuters expect that the Fed will hike rate by 0.25% for the second straight meeting. This increase will push the official cash rate to between 4.75% and 5%, the biggest increase in decades. 

A hawkish Fed will push the USD/MXN pair sharply lower and vice versa. The Fed is balancing the need to fight inflation and guaranteeing financial security. 

USD/MXN technical analysis 

USD/MXN chart by TradingView 

The 4H chart shows that the USD to MXN exchange rate has formed a triple-top pattern. In price action analysis, this is one of the top reversal patterns. The pair has also crossed the 25-day and 50-day moving averages. Also, it is hovering slightly above the key support level at 18.58.

Therefore, because of the triple-top pattern, the pair will likely have a bearish breakdown as traders target the next psychological level of 18. The stop-loss of this trade will be at 18.85.