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USD/MXN hits 1-week highs at 19.20

  • US dollar corrects further versus the Mexican peso, rises to the highest since January 14. 
  • USD/MXN upside capped by the resistance area at 19.20. 

The Mexican peso lost ground against the US dollar for the third trading day in a row and moved off the 3-month highs it reached last week. A stronger US dollar boosted the USD/MXN from 19.07 to 19.20, a 1-week high. 

Near the end of the day, it is trading at 19.17, about to post the highest close in a week. Volatility was low on Monday in a low volume session as US markets were closed.

Initially, better-than-expected Chinese data boosted risk appetite and higher oil prices kept USD/MXN limited. During the European session, the positive tone vaned and the greenback gained momentum. 

The recovery from the multi-month lows it reached last week at 18.87 was capped today by the 19.20 area. A break higher would open the doors for a test of the next resistance area seen at 19.30. On the flip side, a slide back under 19.05, would remove the positive tone and favor a consolidating with a potential test of 18.85. 

MXN Outlook 

Mario Robles and Luis Hurtado, analysts at CIBC, point out that the Mexican peso appreciated at the start of the year after a weak 2018. “While we cannot say that domestic actions are responsible for this trajectory - but rather a weak USD – we do not see any immediate threats to the MXN in the short-term, and possibly until the end of Q1, when the government (via the MoF) must provide legislators with the preliminary criteria for the 2020 budget.”

“On the monetary front, inflation still close to 5% should continue to prompt market participants to expect a hawkish stance by Banxico and expect little rate decompression in the front-end. This may be the case for short-duration tenors, but the long-end of the curve may follow the global rate sentiment that is responding to a much less aggressive US Fed view – meaning we may see some bull-flattening”, the analysts added. 

They see that political uncertainty should lead to a weaker Mexican peso in the months ahead, with USD/MXN rising to 19.4 during the first half of 2019.

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