Mexican Peso plummets as Trump closes in on victory

• The Mexican Peso plunges several percentage points against its major pairs after Donald Trump secures 267 electoral votes, three away from victory. 
• Trump’s threats of whacking huge tariffs on Mexican imports is wreaking havoc with the Peso. 
• USD/MXN closes an open chart gap and extends its established uptrend within a rising channel.  

The Mexican Peso (MXN) plummets in its most-heavily traded pairs on Wednesday, especially versus the US Dollar (USD), against which it is down over two percent after results from the US presidential election show Republican nominee Donald Trump extremely close to victory. 

Trump leads with 267 electoral votes to Vice President Kamala Harris’ 224, according to latest figures from the Associated Press. This leaves Trump needing only three more electoral votes to reach 270 and enter the White House. The news that the Republican party has won a majority in the United States (US) Senate and might also scoop the Congress is further weighing on the Peso and lifting the Greenback in all its pairs.

The Peso’s massive drop against the USD is due to Trump’s threat to place punitive tariffs on Mexican imports as well as the overall uplift to USD from his Dollar-positive economic policies. 

Mexican Peso: Further upside could be down to who wins Congress

The Mexican Peso is currently trading at 20.70 to the US Dollar. However, it may experience even more weakness if the Republicans win a majority in Congress, according to forecasts by Mexican financial news website El Financiero. 

If Trump wins with a Republican majority in Congress, the Peso is likely to fall to between 21.14 and 22.26 against the US Dollar, said the website. 

If Trump wins without a Republican majority in Congress, the pair is likely to end up in a range between 19.70 and 21.14. 

Mexican Peso also rattled by domestic woes

The Mexican Peso faces further negative pressure after the Mexican Supreme Court rejected proposals to alter a controversial new law allowing the election of judges by popular vote on Tuesday, according to El Financiero. 

The Mexican Supreme Court decided to reject the arguments of one of its own judges, Juan Luis González Alcántara, that the reform was partially unconstitutional because aspects of the new law undermines the independence of the judiciary. 

Instead, Alcántara, a known critic of the reforms, had proposed a modification to the law, only allowing the election of Supreme Court judges not all judges, which include thousands of lower court justices as well.

Critics argue the reform could increase concerns among foreign investors regarding the rule of law in Mexico and reduce inbound investment. 

Technical Analysis: USD/MXN closes gap and surges higher

USD/MXN shoots higher and closes the gap opened on Monday (red-shaded rectangle on the chart below). 

USD/MXN 4-hour Chart 

USD/MXN is in an overall uptrend on a short, medium and long-term basis. Further, it is trading in a bullish rising channel. Given the technical dictum “the trend is your friend,” the odds, therefore, favor a continuation higher. 

The Relative Strength Index (RSI) remains just below the overbought level of 70, suggesting there is still scope for further upside.

A break above the 20.80 high would probably confirm more gains, with 21.00 coming into view as the next key target and resistance level (round number, psychological support).