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USD/MXN tests 20.00 on the back of a stronger Mexican peso

  • Mexican peso rises for the third day in a row versus the US dollar and extends recovery. 
  • Greenback losses momentum against emerging market currencies. 

The USD/MXN dropped further on Wednesday and fell to 19.97, hitting levels sub-20 for the first time in a month. Then it rebounded, but the bounce from the lows was capped below 20.20. 

Near the end of the session, it is trading at 20.07, consolidating below 20.20 and with the technical bias favoring the downside. So far the area around 20.00 capped the downside. The mentioned area remains exposed, and a firm break lower would clear the way to more losses. The next support is seen at 19.60/70. 

To the upside, if the greenback recovers and climbs on top of 20.35, it would remove the negative tone signaling potential for a test of 20.50. However, the short-term scenario from a technical view is bearish. 

From a fundamental perspective, the recent slide took place amid an improvement in risk appetite and a weaker US dollar. Also, the Mexican peso received some support after the government announced a new offer to repurchase bonds issued to finance a new airport (currently under construction) that President Lopez Obrador is set to cancel. 

MXN outlook for 2019

The USD/MXN is about to end the end with a gain of 4.5%. It moved with a bullish bias but found resistance below 21.00.  “MXN is the best performing high yielder this year with only the safe-havens of USD, CHF and JPY outperforming. Banxico’s tightening cycle has helped significantly with MXN the most attractive carry currency globally when adjusting for volatility and liquidity. We see risk of up to another 50bp of tightening. That said, the change in government poses significant risk to investor sentiment and we expect MXN to weaken ahead despite compelling risk adjusted return,”, said Christian Lawrence, Senior Market Strategist at Rabobank. 

They see some risk of USD/MXN trading sub-20, but they point out that the dominant range for 2019 is likely to be 20-21.

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