Mexican Peso resiliency holds below technical resistance ahead of FOMC minutes
- The Mexican Peso remains supported by risk sentiment.
- US Consumer Confidence rebounds in May, but USD fails to break technical resistance against the emerging market (EM) Peso.
- USD/MXN remains confined below trendline resistance at 19.29.
The Mexican Peso remains firm against the US Dollar (USD) on Tuesday, despite a positive US Consumer Confidence report and a mild recovery in the Greenback against its major peers.
With the US Dollar’s appeal recently coming into question, the Peso has benefited from outflows from the USD into alternative assets.
At the time of writing, USD/MXN is trading near 19.22 with trendline resistance firming at 19.29.
US demand and sentiment indicators fail to boost USD/MXN
US Durable Goods Orders for April, released at 12:30 GMT, came in at -6.3% for April, a sharp decrease from March's 7.6% reading.
While the negative print highlights a slowdown in manufacturing demand, the reading was better than market expectations of a 7.9% contraction, tempering concerns about a steeper downturn.
The indicator tracks new orders placed with US manufacturers for long-lasting goods — typically those expected to last three years or more — and serves as a key gauge of industrial activity and business investment.
Later in the day, the US Conference Board released its Consumer Confidence Index for May, which showed an impressive recovery to 98, up from 86 in April.
Despite the data providing some relief regarding the health of the US economy, it did not trigger a surge in the US Dollar.
Fed’s Kashkari urges patience, highlighting uncertainty from economic shocks
Neel Kashkari, President of the Federal Reserve (Fed) Bank of Minneapolis, provided a temporary boost in confidence this Tuesday. When speaking at the Tokyo summit, where bankers, policymakers, and economists gathered to discuss monetary policy, he maintained a hawkish tone.
To conclude his speech, Kashkari stated that "Massive shocks create uncertainty for policymakers, both in understanding the underlying dynamics of the shocks themselves and, for some shocks, in determining the appropriate policy response. In such moments, taking time to get more information to help inform the collective judgments of policymakers may be the best of an imperfect set of options," the official site of the Federal Reserve Bank of Minneapolis reports.
These comments reiterate the Fed's narrative that interest rates will likely remain at current levels until the impact of US President Trump’s tariffs on the economy becomes clearer.
Mexican Peso daily digest: FOMC minutes in focus
- With the Fed reiterating its 'data-dependent' stance, US Durable Goods Orders provided a mixed signal regarding the strength of US industrial activity.
- Following a significant decline in Consumer Confidence to 86.0 in April, the latest data offers insights into how US households are responding to increased fiscal uncertainty and global geopolitical tensions.
- On Wednesday, the minutes from May’s Federal Reserve Open Markets Committee (FOMC) meeting will provide additional insight into the central bank's decision to maintain interest rates at current levels and the potential trajectory of monetary policy in the near term.
- Market participants are awaiting the release of the Fed's preferred inflation measure, which is the US core Personal Consumption Expenditures (PCE) data for April, as well as the University of Michigan Consumer Sentiment figures, both scheduled for release on Friday.
- These data points are crucial for understanding inflation and consumer sentiment, as they gauge the feelings of US citizens about the current economic situation. Both factors influence expectations regarding when the Federal Reserve (Fed) might consider cutting interest rates.
Mexican Peso technical analysis: USD/MXN shifts lower after a rejection of trendline resistance
USD/MXN continues to trade within a downward trend, with prices capped beneath the 10-day Simple Moving Average (SMA) at 19.33.
After hitting a new year-to-date (YTD) low of 19.20 on Monday, a modest rebound in the US Dollar has pushed the pair to trendline resistance from the April decline at 19.29.
Momentum indicators remain weak, with the Relative Strength Index (RSI) flattening at 36.47, indicating that while bearish momentum is present, the market is not yet in oversold territory.
With the downtrend currently intact, a break below 19.20 could draw attention to the October low at 19.11, which serves as the next significant support level.
A sustained break below this level could open the door to deeper declines toward 19.00, while any rebound would first need to reclaim 19.47 to shift short-term sentiment.
USD/MXN daily chart
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Author
Tammy Da Costa, CFTe®
FXStreet
Tammy is an economist and market analyst with a deep passion for financial markets, particularly commodities and geopolitics.
