USD/MXN jumps to test weekly highs and retreats below 19.70

The USD/MXN pair moved on Wednesday from the weekly bottom to the top in a few minutes. It dropped toward the 19.50 support area and then rose sharply to 19.74, matching the eight-week high it reached yesterday. 

EM pressures ease as Wall Street rebounds, crucial days ahead in Mexico 

The pair rallied earlier today when equity prices across the globe bottomed on the back of global growth concerns, affected by the escalation in trade tensions between the US and China. Emerging market currencies continue to decline against the US dollar, excluding the Turkish Lira, amid the risk-off environment. 

In Mexico, the economy shows a near-zero growth rate, and the outlook turns worst every day. On Thursday, July CPI data is due, and analysts expect it to show a decline in line with the Bank of Mexico projection. Banxico’s key interest rate stands at 8.25%, the highest in a decade. With practically no growth in the economy and inflation trending lower, a rate cut from Banxico near year-end was seen. Some analyst point out the central bank could move to a dovish tone at the next meeting. The recent slide of the Mexican peso against the US dollar and volatility creates a dilemma for the central bank. Next week is the Board meeting. 

A new range? 

The USD/MXN pair is moving at the moment in a new higher range between 19.50 and 19.75. To the upside, the critical level is seen at 19.80. A close on top would likely favor further gains and point to a test of the key psychological level of 20.00. 

On the flip side, under 19.45/50 the bullish pressure will likely ease, but the bias to the upside will probably remain in place as long as USD/MXN holds above 19.30.