USD/MXN heads for lowest close in a month, around key 18.70

  • Mexican peso ends week higher versus US dollar despite Fed rate hike, ahead of Banxico. 
  • USD/MXN testing support at 18.70, below could drop to 18.50.

The Mexican peso rose on Friday against the US dollar and was about to end the week and the quarter on a strong note. The currency climbed supported by a positive tone around emerging market currencies and also by higher crude oil prices

The USD/MXN ended lower the week despite another rate hike from the Federal Reserve. What the US central bank did, was already priced in. The tone of the statement and the projections did not create tensions across emerging markets. 

The peso also showed resilience despite the lack of resolution regarding the trade deal between the US and Canada. The fact that the US and Mexico already reached a deal offset major concerns. Another positive factor over the week for MXN was the rally in crude oil prices; the WTI barrel rose almost 4%. 

After Fed, comes Banxico

Next Thursday is the meeting of the Bank of Mexico. There is not a unanimous consensus about what Banxico would do. The stabilization of the exchange rate and the expectations that inflation will slowdown removed pressure from the central bank to raise rates again. Some analysts expect Banxico to hike the key rate to 8.0%, following the Fed. 

On Friday, it was informed that economist Johnathan Heath, would be nominated for central bank deputy governor. The report was received as a positive in markets. The election is taken by the president-elect administration. Over López Obrador six-year presidential term, he will get to nominate three deputy governors and the governor. 

USD/MXN Technical levels 

The pair ended the week around 18.70 that is a relevant support level. A consolidation below that level would clear the way to more losses, targeting 18.50. Between 18.40 and 18.50 there is a strong barrier that is likely to cap the downside but if broken, the outlook would favor more gains to the peso. 

To the upside, if USD/MXN holds above 18.70 it could correct higher. Only a firm break above 19.05 would change the current neutral to bearish short-term bias. 
 

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