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USD/MXN hold to recent losses, remains in a range above 20.00

  • Mexican peso holds to recent gains versus the US dollar after the budget presentation and ahead of Banxico meeting. 
  • US dollar remains week as FOMC meeting starts and despite risk aversion. 

The USD/MXN hit earlier today the lowest levels in is six days at 20.03. It rebounded to 20.18 but as of writing is approaching to daily lows and to the psychological area at 20.00. 

The Mexican peso opened the week higher against the US dollar and held to gains. It strengthened following the presentation of the 2019 budget from the Andres Manuel Lopez Obrador administration. Also, a weaker US Dollar continued to push lower USD/MXN, amid expectations of a slowdown in the pace of rate hikes next year from the Federal Reserve. 

The US central bank will announce its decision on Wednesday and also will present updated projections. A rate hike is priced in, the statement and the projections are likely to move the US dollar. 

The Bank of Mexico will have its Board meeting on Thursday. Most analysts expect a 25 basis point rate hike to 8.25% (would be its highest level since August 2008) while some see the bank on hold. Inflation in November fell less than expected, and uncertainty among investors on the new government remain elevated. The key driver of Banxico’s decision is the exchange rate that remained mostly steady since the last meeting, hovering around 5-month highs. 

USD/MXN Technical 

The pair is moving in a consolidation range with a bearish bias. The key support of the range is 20.00. A daily close significantly under 19.95 would open the doors to further losses. The next support is seen at 19.60/70. 

To the upside, the upper limit of the range is the 20.20 area (Dec 17 high). A break higher would favor more gains. The next resistance is located at 20.40. On a wider perspective, a consolidation on top of 20.60 is needed to clear the way for a test of 2018 highs at 20.95/21.00.

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