USD/MXN holds below 20.00 but peso struggling despite weak dollar, strong crude

USD/MXN is a little higher amid thin market volumes with US market participants away for the day.
The peso is a little weaker despite risk on and strong crude prices, perhaps weighed by dovish Banxico vibes.

Joel Frank Independent Analyst

USD/MXN is seeing subdued, rangebound price action on the first trading day of the week. Volumes are very low given that US market participants are away for Presidents’ Day and now that European participants have left for the day. 19.90 (last week’s lows) has proven to be a solid floor for the price action, whilst USD/MXN’s 50-day moving average at 19.97 has been a solid ceiling. At present, the pair trades in the 19.95s, up a modest 0.1% on the day.

Driving the day

The US dollar is a little weaker on the day versus most of its G10 counterparts (aside from JPY), amid a risk-on tone to trade. Meanwhile, crude oil prices are up, boosted further by supply concerns in the Gulf of Mexico amid adverse Arctic weather conditions. This mix of a softer USD and higher crude oil prices would typically be a positive mix for the Mexican peso, but this has not been the case on Monday.

Perhaps the peso is struggling in wake of dovish commentary from a Banxico policymaker at the end of last week; Mexico could see a further two rate cuts in 2021 if inflation stays in line with expectations, said Banxico Deputy Governor Gerardo Esquivel late last Friday. His comments came after the bank, as expected, cut interest rates to 4.0% last Thursday, the lowest the bank’s key lending rate had been since 2016.

Long-term USD/MXN downtrend intact

Recent depreciation in the USD/MXN exchange rate shows that the pair’s long-term downtrend, which has been in play since 27 April 2020, remains a crucial driver of price action. The downtrend linking the 27 April 2020, 25 September 2020, 4 November 2020 and early this month highs has been well respected, implying USD/MXN’s bias remains towards more downside. Traders are likely to continue to target an eventual move back towards 2021 lows just under 19.60.

USD/MXN daily chart

Author

Joel Frank

Independent Analyst

Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018, specialising in the coverage of how developments in the global economy impact financial asset

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