USD/MXN heads for the lowest close since October below 19.40

The Mexican peso continued to rise on Monday against the US dollar and hit the highest level since late October, supported by an improvement in risk appetite. Also, a weaker US dollar contributed to the downside in USD/MXN. 

The pair broke below 19.40 and bottomed at 19.28. From the lows bounced modestly to the upside and it was about to end the day hovering around 19.35. 

The technical bias continues to favor the downside with the price holding below the 100-day moving average. The decline found support so far at the 19.30 zone, a consolation below could clear the way for a test of the next support seen at 19.15/20 that protects 19.00. On the upside, now 19.40 is the immediate resistance followed by 19.55 and 19.75. 

Key data ahead: FOMC minutes and Mexican CPI

Today’s US data showed a lower-than-expected reading (ISM Non-Manufacturing), suggesting that the US economy continues to grow, but pointing to a slowdown. On Wednesday, the Federal Reserve will release the minutes of its latest meeting. 

In Mexico, inflation data is due on Wednesday. The annual rate is expected to tick higher to 4.8%.  “The Bank of Mexico raised its overnight rate 25 bps to 8.25% in late December, its fourth 25 bps rate hike of 2018. Those rate hikes coincided with another volatile year for the Mexican peso, which swung from gains to losses as markets considered Mexico’s economic and fiscal prospects under the leadership of new president Andres Manuel Lopez Obrador (AMLO). Amid all the volatility in the peso, Mexican CPI inflation was reasonably steady for most of last year, particularly when looking at the core figure. Accordingly, rate hikes
from Mexico’s central bank appeared to be more defensive in nature, aimed at keeping inflation expectations anchored and limiting the pass-through from a weaker peso to higher inflation. Subsequent CPI readings will be key to watch for clues on whether the central bank will continue to raise interest rates, while any further signs of disruptive economic policies under AMLO’s leadership could also prompt a hawkish response from central bank policymakers”, wrote Wells Fargo analysts.