USD/MXN Outlook 07/09: Low Liquidity Raises Volatility Risk

(MENAFN- Daily Forex) This currency pair finds itself back within the lower elements of its value having demonstrated a solid selling spurt on Thursday. While day traders will certainly look at the USD/MXN with interest this morning, they also need to remember that the U.S Labor Day holiday is in effect today. Not only are U.S banking systems mostly closed, but so are Canadian banks. The absence of these two major Forex players will create significantly lower volume for the Mexican Peso today, but traders will need to brace for the potential of heightened price action on Tuesday as financial institutions return.

Top Regulated Brokers1 Get Started 74% of retail CFD accounts lose money USD/MXN Volatility Risk Grows in Thin Labor Day Trading

The move lower late on Thursday in the USD/MXN produced velocity that correlated with other major currencies trading against the USD. Financial institutions clearly are trying to position themselves before a couple of major economic data points stumble into Forex in the next week and half. The U.S will release key inflation numbers this coming Friday with the Consumer Price Index results, then on the 16th of September the Fed's FOMC decision is being heavily anticipated.

Both the inflation and interest rate proceedings are certain to ignite Forex volatility. Because of the low volume that is going to be seen in the USD/MXN today and the depths being traversed for the moment, retail traders need to be careful if they are trying to pursue wagers on the currency pair today in case a large unbalanced order filters into Forex.

EURUSD Chart by TradingViewUSD/MXN Holds Below 16.9000 Ahead of CPI and Fed Decision

The broad markets remain in a cautious state per behavioral sentiment, and this is creating reactions in the USD/MXN. The currency pair is situated a hair below the 16.90000 level at this moment, but bids and asks are wide and speculators need to be wary of the current conditions. Entry orders need to be used by smaller traders today to guard against unexpected price fills. If a speculator insists on betting the USD/MXN today they should have targets in mind and not linger in the marketplace.

Tuesday's trading after Labor Days typically is rather standard, except for the notion that historically after the holiday passes large players often come out of their summer funks and become proactive. The USD/MXN is already trading at lows not seen since June of 2024 and the remainder of this week will prove interesting to see how financial institutions react with major inflation and interest rate risk events ahead, not to mention the obvious point that the Middle East crisis has no end in sight Tuesday Could Bring Sharper USD/MXN Volatility

While today's trading in the USD/MXN is hard to predict because of the lack of volume and the likely tendency that large institutions needing to transact the currency pair will wait until tomorrow, this opens the door to considerations of what it going to happen on Tuesday. The price of WTI Crude Oil has jumped in the cash market that is operating today as the commodity trades above $93.00 at this moment. This could show that risk adverse sentiment may be strong as the USD/MXN opens tomorrow if financial institutions do not vent their caution enough today. Meaning day traders should be braced for volatility early on Tuesday and particularly as the North American financial institutions line up and open for trading in Forex.

USD/MXN Price Chart: Tests of Key LevelsUSD/MXN May See Brief Oversold Bounces

While the USD/MXN trades within its lower realms and tests the confidence of financial institutions, there is a nagging thought likely brewing in the minds of contrarian traders that the currency pair has oversold and is primed for intraday technical reversals.

Even if the USD/MXN doesn't jump higher substantially, the consideration that the lower realms being traversed now will cause algo trading systems to buy the currency pair occasionally as a safe guard may prove worthwhile for those who have the desire to try and scalp slight momentum upwards/MXN Traders Should Treat Holiday Price Action with Caution

Because of the U.S Labor Day celebration retail USD/MXN traders may simply want to step to the side along with the large financial institutions and wait for Tuesday's price action. If a speculator is intent on betting today, then they need to understand that the lack of volume makes today's results not only dangerous to pursue, but also suspicious regarding any evidence which develops in the short-term.

USD/MXN Short Term Outlook:

Current Resistance: 16.89950

Current Support: 16.89820

High Target: 16.93800

Low Target: 16.87800

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