There are different currencies among emerging markets that could be great for traders in the coming months. There are some countries that have been pushing for different strategies to stop the Coronavirus crisis and that could have an impact on their currencies. We are talking about Mexico, Brazil and Poland.
In this article, we will share with you some of the things you should take into account at the time of understanding the fundamentals behind these EM currencies.
Disclaimer: all the information presented in this article shouldn’t be considered investment advice. All the data available should be considered for educational purposes. Never invest more than what you are able to lose and always contact a professional financial advisor.
This is one of the largest economies and countries in Latin America and one of the U.S. neighbours. The Mexican peso (MXN) has experienced a devaluation against the dollar as most of the EM currencies in the world when the Coronavirus expanded during March.
Now that it has started to trend lower, we could be experiencing a traditional ABC pattern that would signify a correction in this regard. At the same time, one of the confirmations we can get the MXN is heading towards the C point would be to see it breaking below the 21.50 level.
The target is currently between 19.50 and 20.00 were the currency finds some previous support and resistance levels. It is worth mentioning that Mexico didn’t implement a large and massive quarantine as other countries, which allowed the economy to react better than others, nonetheless, analysts consider that this would be one of the economies that would register the worst results in Latin America.
We would also need to understand which is going to be the strategy of the President Andrés Manuel López Obrador and how he is expected to attract companies that would invest in the country. A higher investment rate from foreign companies would help the Mexican peso keep its value while a further exodus of companies would put pressure on the MXN in the next months.
Brazil, another giant economy in the region and one of the BRIC countries is currently experiencing a similar situation to the one that Mexico lived. The Coronavirus has affected the country in a tremendous way considering the Brazilian real (BRL) lost almost 50% of its value in just a few months.
Nowadays, the Brazilian real doesn’t seem to be in an ABC correction as it was experienced by the Mexican preso or that we could see in the coming months for the USD/MXN trading pair.
Brazil is the second country in the world with the largest number of Coronavirus cases after the United States. This shows the large effect that this pandemic has had on the Brazilian economy.
Despite that, the current economically liberal government could push with the necessary economic reforms in order to make the local economy much more competitive. If that happens, we could see a flow of capital into the country that could put some pressure in the USD/BRL trading pair and help the Brazilian real recover some of the price lost in the last few months.
Regarding the Polish situation, we see a similar chart to the one offered by the Mexican peso. The fall from of the PLN from 4.24 per USD has been in three main movements clearly seen in an ABC pattern with lateralization in recent months, which show stabilization.
The current level to see and follow is going to be the 3.89 zloty per USD, which worked as support and resistance in the last months. At the same time, we could see increased pressure for a devaluation considering Poland has been the country in Europe with the largest inflation in the last 12 months, reaching 5.1% y/y in March.
This inflation has been higher than the target established by the Polish central bank and something that could certainly affect the stability of the prices in the future if the economy starts to index these price increases. It is worth taking into consideration that the local government has stopped sharing information about the budget and how they are currently financing the large expenditures to fight the Coronvirus crisis.
These three currencies could be good to analyse and follow in the coming months as the market continues to evolve after the current pandemic. The way in which these economies will handle the virus will have an impact on their currencies, specifically after the large printing of currency that some of the central banks of the aforementioned countries have been undertaking.