USD/MXN hits fresh three-week highs above 19.80

• Mexican peso drops for the fifth consecutive day against US Dollar. 
• Greenback loses momentum against majors after US data but remains strong versus EM. 

The USD/MXN just reach 19.83, the highest level in almost four weeks. As of writing, trades at 19.82, about to post the fifth gain in-a-row. The positive tone remains intact despite short-term overbought readings, offering no signals of a correction. 

Earlier today, USD/MXN pulled back following the release of the US ISM Manufacturing Index that surprised to the downside, but it found support at 19.75. Then it climbed back above 19.80. 

The Greenback weakened but in particular against majors and remained in the positive ground versus emerging-market currencies. Risk aversion and the global growth outlook continue to support the demand for the US Dollar against high-yielding currencies. 

From a technical perspective, while above 19.80 a visit to 20.00 remains on the cards. Under 19.67 the bullish pressure will likely ease. Under the mentioned level, support might come at 19.60 and 19.45/50. 

Mexican Peso outlook 

“Despite our call for some peso depreciation during the 4Q19, we don´t see clear reasons to change our peso outlook ahead. Considering a scenario of moderate economic growth in the US, no further escalation of the trade war between the US and China, the continuity of negotiations towards ratification of USMCA trade deal and no import tariffs by the US on Mexican goods, there is scope for moderate peso appreciation from Q1 2020 onwards”, explained analysts at MUFG. 

Regarding the economic outlook, they see downside risks to growth as a positive factor to a scenario of low inflationary pressures and lower policy rates. “Domestic risks still come from the adoption of radical policies which have been inhibiting investments, but these risks are intensified only in case of a continuous downward revision to GDP growth that could damage AMLO (Andres Manuel Lopez Obrador) popularity further.”