USD/MXN sideways around 19.00, still near 3-month lows

The Mexican peso is about to end the day modestly higher against the US dollar amid an improvement in global sentiment and higher crude oil prices. The USD/MXN pair yesterday reached a 2-day high at 19.08. It failed to rise above 19.10 and pulled back to the 19.00 area. 

Today it is moving sideways around 19.00 on a low volatility session. The Mexican peso was not among the top performers. “EM currencies benefited somewhat from the favourable funding conditions (stability of the USD and UST yields anchored) along with the recovery in oil prices, which rose above the 60 USD per barrel threshold. The BRL was the best performer across EM currencies”, said BBVA analysts. 

On Wednesday, the Federal Reserve will announce its decision on monetary policy. A change to a more dovish tone is expected. The greenback dropped on Friday on the back of policy shift expectations. The outcome of the meeting could have a significant influence on the Mexican peso and also on Banxico. 

Next week will be the turn of the Bank of Mexico meeting. Since the last meeting, the exchange rate appreciated, inflation slowed down and market volatility eased. All those factors favor a no change in rates. The key rate stands at 8.25%, the highest in more than a decade, it is an attractive level to investors, but it represents expensive funding costs to Mexican companies. 

USD/MXN Levels to watch 

To the upside, 19.20 is the critical resistance in the short-term (neckline of a potential double bottom at 18.87), a consolidation on top would point to a stronger US dollar correction targeting 19.30 and 19.45. On the flip side, the area around 19.85/87 capped the downside during the last two weeks and a break lower would signal more losses ahead. The next support is located at 18.70.