US President Trump announced yesterday that the US and Mexico had reached a deal on trade that would replace the existing NAFTA relationship. Canada has not been included in the agreement as of yet with negotiations ongoing. Commentators and analysts have hailed the new deal as a retrograde step that is “worse that NAFTA for trade”. But with pressure on President Trump to conclude a deal before the midterms, some compromises were reached.
The USDMXN pair has traded around 18.800 since the announcement with support at 18.600. As more details emerge from the agreed deal it will be easier for the markets to form an opinion, but it may be days or weeks until the minor details are finalised. A break under the rising support trend line at 18.500 puts pressure on the low at 18.400 and may lead to a selloff down to support at 17.940. Resistance at 19.060, if broken on a move higher, could be retested as support after the 19.378 level is reached. A breakout higher would see resistance firm up around 19.882 ahead of the 20.000 level.
USDCNH The US/Mexico trade deal also puts pressure on China with the President saying that it was not the right time for talks with China on trade. These comments saw weakness in Chinese equities develop overnight. The USDCNH pair is trading around 6.8000 with support at 6.7824. The worry is that the pair broke under the rising support trend line and retested the trend line as resistance last week. The result was a strong bearish move with current price action potentially painting a bear flag in the lower timeframes. A loss of the 6.7375 level opens the way to a cluster of support around 6.6650.
Resistance at 6.8220 needs to be tested and turned to support if buyers are to have any chance of gaining ground. From there a move up to the break down level at 6.8600 and the retest level at 6.8970 would set up a short squeeze scenario. The stop loss levels for sellers expecting lower prices are held above 6.9500 with the high at 6.9612. A break above can lead to a run to 7.0000 and potential intervention from Chinese authorities.