USD/MXN OUTLOOK: BEARISH
- USD/MXN has corrected decrease in current days after failing to clear key resistance within the 21.00 space
- Promoting momentum may speed up within the near-term, however to have extra conviction within the bearish state of affairs, worth would wish to maneuver beneath its 200-day transferring common
- From a basic perspective, Banxico’s financial coverage choice would be the heart of consideration within the coming week, with the central financial institution seen elevating charges from 4.75% to five.00%.
After exploding larger and reaching an eight-month excessive at 20.98 earlier this week, USD/MXN has began to right decrease after the Federal Reserve adopted a dovish stance at its newest coverage assembly, noting that liftoff would require full employment and that board members might be very affected person earlier than elevating borrowing prices regardless of elevated CPI readings.
The place taken by the U.S. central financial institution led to a pointy pullback in Treasury yields, as merchants started to reduce expectations that policymakers might be aggressive in withdrawing stimulus to fight rising inflationary forces. This atmosphere has created a constructive backdrop for danger belongings, boosting equities and a few EM currencies.
Broad-based optimistic sentiment prevalent in monetary markets, coupled with financial coverage divergence between the Fed and Banxico, ought to assist the Mexican peso within the close to time period. For added context, Banxico has already raised charges 3 times in 2021 and is probably going to take action twice extra earlier than the top of the 12 months to struggle pervasive worth pressures that threaten to de-anchor inflation expectations. Within the coming week, for instance, the Mexican central financial institution is anticipated to lift the in a single day price by 25 foundation factors to five.00%, adopted by one other hike of the identical magnitude in December.
From a technical standpoint, after failing to clear Fibonacci and channel and resistance close to 21.00, USD/MXN has fallen considerably, breaching key assist at 20.45 on its journey decrease. This break could speed up the current sell-off, however to have extra conviction within the bearish narrative, we would wish to witness a sustained transfer beneath the 200-day easy transferring common at 20.15. If this state of affairs have been to play out, worth may very well be on monitor to check the psychological 20.00 mark in brief order.
On the flip aspect, if bulls retake management of the market and worth pivots larger, the 20.45 area must be seen as the primary hurdle containing additional upside. Nonetheless, if patrons handle to push USD/MXN above this resistance decisively, the pair may have few obstacles to reclaim the 21.00 space heading into the second half of the month.
USD/MXN TECHNICAL CHART
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—Written by Diego Colman, Contributor