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USD/MXN recovers from Friday’s slide, eyes 19.30

  • Mexican peso drops versus US dollar amid risk aversion. 
  • USD/MXN keeps bullish bias, limited so far by 19.30, supported above 19.00. 

The USD/MXN pair rose on Monday on the back of risk aversion. The Mexican peso declined versus the US dollar but was not among the worst EM performers. 

During the American session, the pair rose to test daily highs at 19.25 but failed to break on top and pulled back modestly. Near the end of the session was hovering around 19.20. It has erased most of Friday’s losses and continues to move with a bullish bias. 

From a technical perspective, the pair remains on an ascendant channel with immediate support at 19.05, followed by 18.95 and then the strong 18.90.  A close under 18.90 would point to further losses and a potential test of the 2019 low seen at 18.73/74. On the upside, a test of the 19.30 barrier seems likely if the pair remains on top of 19.10. A break higher would target the 19.45/50 area. 

Regarding fundamentals, the increasing concerns from the US-China trade wars is affecting market sentiment and having a limited impact so far on the Mexican peso. The main risk for trade in Mexico points to the US Congress not ratifying the new trade deal between Mexico, US and Canada. 

The Mexican peso has been the standout outperformer in the region, and among the best performers across EM this year. Even though we expect Banxico to shift to a dovish monetary policy stance in the coming months, the mix of attractive rates and still solid macro fundamentals suggests continued outperformance”, explained Gustavo Rangel analyst at ING. He noted that despite lingering policy uncertainties and growing concerns about Mexico’s economic growth outlook, they believe that the risk of a big rupture in market credibility in issues like fiscal prudence, PEMEX and CB independence should take longer to emerge.

On Thursday, Banxico will announce its decision on monetary policy. No change in the key rate is expected. The minutes from the latest meeting showed that one member of the board disagreed with the bias of the statement, favoring a more flexible stance. The interest rate is 8.25%, a level that continues to attract funds. 
 

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