Mexican Peso recovers after turnaround in risk appetite

The Mexican Peso reverses earlier loses after risk appetite improves.
The Peso fell against the US Dollar after strong US economic data strengthened the buck on Thursday.
USD/MXN could be in a new short-term uptrend after breaking above a trendline.

Joaquin Monfort FXStreet

The Mexican Peso (MXN) recovers after a weak start on Friday following a turnaround in risk sentiment that supports the Peso, a so-called "risk-on" currency.

MXN recently weakened against the US Dollar, threatening to reverse the Peso’s short-term trend, after a slew of positive economic data from the US further delayed the time the Federal Reserve (Fed) is expected to lower interest rates, supporting the Greenback.

The Mexican trade balance showed a wider-than-expected 3.746 billion deficit in April according to data from INEGI released on Friday. This was lower than the previous month's surplus of 2.098B and the 0.8B deficit forecast by economists.

Mexican Peso: Bank of Mexico releases meeting Minutes

Mexican data released on Thursday mostly came out in line with estimates, but the Q1 Gross Domestic Product (GDP) showed a surprise upward revision to 0.3% on a quarter-on-quarter basis compared to the 0.2% previous estimate. This temporarily boosted the Mexican Peso in its pairs.

The release of the Bank of Mexico (Banxico) May meeting Minutes showed most policymakers continued to see upside risks to inflation despite data showing core inflation continuing to decline. Persistent inflation in the Services sector was seen as a key stumbling block to inflation falling to Banxico’s 3.0% target.

The Minutes showed the decision to keep interest rates at 11.00% was unanimous.

In its concluding statements, Banxico’s Governing Board said: “challenges and risks prevail, which requires monetary policy to continue being managed prudently.”

Adding, “With this decision, the monetary policy stance remains restrictive and will continue being conducive to the convergence of inflation to the 3% target in the forecast horizon.”

Technical Analysis: USD/MXN breaks above trendline and continues rising

USD/MXN – or the number of Pesos that can be bought with one US Dollar – rises after breaking above the trendline for the April-May decline. This could possible indicate the pair is now in a short-term uptrend, favoring long positions over shorts.

USD/MXN 4-hour Chart

A break above Thursday’s high at 16.76 would confirm a continuation of the young uptrend to a possible target at the previous range lows around 16.85.

Given the medium and long-term trends are bearish, however, there remains a high risk of the short-term trend reversing and the pair continuing lower.

A decisive break below the grey trendline for the up move at roughly 16.68 would bring the short-term uptrend into doubt and possibly signal the resumption of more downside.

Economic Indicator

Gross Domestic Product (QoQ)

The Gross Domestic Product released by INEGI is a measure of the total value of all goods and services produced by Mexico. The GDP is considered as a broad measure of economic activity and health. Generally speaking, a high reading is seen as positive (or bullish) for the Peso, while a negative trend is seen as negative (or bearish).

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD eases to daily lows near 1.1720

EUR/USD now comes under some mild downside pressure amid modest gains in the US Dollar, revisiting the 1.1720 region, or daily lows, as investors continue to assess the latest interest rate decision by the Federal Reserve, while gearing up for upcoming Fedspeak.

GBP/USD breaches below 1.3400 on USD bounce

Poor results from the UK calendar hurt the British Pound at the end of the week, sparking a correction in GBP/USD to the area below the 1.3400 support, hitting daily lows at the same time. Next of note across the Channel will be the BoE meeting on December 18.

Gold flirts with seven-week tops past $4,300

Gold picks up renewed upside traction and advances to multi-week highs north of the $4,300 mark per troy ounce, backed by prospects of further interest rate cuts by the Fed in the next year. The precious metal’s uptick comes despite the firmer Greenback and rising US Tresury yields.

Litecoin Price Forecast: LTC struggles to extend gains, bullish bets at risk

Litecoin (LTC) price steadies above $80 at press time on Friday, following a reversal from the $87 resistance level on Wednesday. Derivatives data suggests a bullish positional buildup while the LTC futures Open Interest declines, flashing a long squeeze risk.

Big week ends with big doubts

The S&P 500 continued to push higher yesterday as the US 2-year yield wavered around the 3.50% mark following a Federal Reserve (Fed) rate cut earlier this week that was ultimately perceived as not that hawkish after all. The cut is especially boosting the non-tech pockets of the market.

Aave Price Forecast: AAVE primed for breakout as bullish signals strengthen

Aave (AAVE) price is trading above $204 at the time of writing on Friday and approaching the upper boundary of its descending parallel channel; a breakout from this structure would favor the bulls.