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XTB TRADEBEAT

NAFTA talk a key driver for North American currencies

Summary:

  • CAD and MXN rise on rumours of a NAFTA deal 
  • Reports that Trump wants to make an announcement next week
  • USDCAD and USDMXN could be developing S-H-S reversal signals 

There has been some notable gains seen in the Canadian dollar and Mexican Peso in recent trade following some reports of progress towards a new NAFTA deal. According to three people cited by Bloomberg Trump wants to announce a preliminary agreement at a summit in Peru next week. The summit begins next Friday, the 13th April and Trump wants to join leaders from neighbours Canada and Mexico to unveil the broad outlines of a new NAFTA deal.

 There are several possible reasons for the push to get a deal in place in the not too distant future with Mexican elections coming on July 1st, with campaigns scheduled to begin next month. During this time there won’t be any negotiations and a new administration could mean all talks so far have to be discarded and that we’re back to square one. The US has its mid-terms in November and therefore time is of the essence in trying to get at least an initial outline in place. 

Given the recent rhetoric surrounding trade wars with China, the US may well see this as an opportunity to settle NAFTA and focus on bigger fish to fry. A leaked note from negotiations with the EU said that the US wanted the bloc to rally together to take on China. Perhaps the US is looking to gather more support closer to home and end the battle with its neighbors to focus on the trade war with China. 

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 USDCAD may have formed a S-H-S reversal formation on H4. Source: xStation

The USDCAD has declined in recent hours and in doing so the market may be set to break lower - especially if some CAD favourable outcome transpires from NAFTA talks. The pair may be seen to have carved out a head and shoulders reversal signal with the head coming at last month’s high of 1.3125. If we take a rising neckline (shown in yellow) then the drop below 1.2850 has triggered this setup which would target a move to 1.2575 if it plays out in a textbook manner. Alternatively, more conservative traders may look at the March lows of 1.2802 as a possible neckline and therefore deem the market to have not broken just yet. 

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 A S-H-S formation may already be in play for the USDMXN which would target a substantial move lower. Source: xStation

There’s a similar setup potentially in play for the USDMXN which has also declined in the last few hours on the NAFTA talks. In this case a possible neckline may be identified at 18.34 with the head at 19.90 which would target a substantial move to the downside to around 16.78. 

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