Mexican peso gains on positive market mood and solid data from Mexico

Business

  • The Mexican peso edged higher on Monday as market mood remained upbeat following U.S. and China data.
  • Mexico’s economy continues to expand despite restrictive monetary policy, which is positive for the peso.
  • Technically, USD/MXN is trading along the lower end of a flat range in the short term.

The Mexican peso (MXN) weakened on Monday as a weaker-than-expected U.S. jobs report raised hopes that the Federal Reserve will move to cut interest rates, lowering borrowing costs for businesses and businesses. This rose slightly, supported by increased risk appetite. consumer.

The market’s positive mood continued in Asian trading on Monday on the back of China data, further supporting the peso as it strengthens in a risk-on environment.

At the time of publishing this article, USD/MXN is trading at 16.92, EUR/MXN at 18.22, and GBP/MXN at 21.28.

Business Mexican peso strengthens as market mood remains positive

The Mexican peso weakened on Monday as Asian stocks showed continued expansion following the release of China’s Caixin Services PMI data, and hopes for lower interest rates rose following Friday’s weak US jobs report. It rose slightly as the market rose. In Japan, the Nikkei Stock Average closed 0.93% higher, China’s Shanghai Composite Stock Price Index was up 1.16% and the Hang Seng Index was up 0.53% at the time of writing.

Business Mexico’s data is surprisingly good

In Mexico, recent economic indicators show that the economy is doing surprisingly well under the yoke of historically high interest rates imposed by the Bank of Mexico (Banxico) to curb inflation. continuing.

Mexico’s GDP growth was weaker on an annual basis in the first quarter, but increased by 0.2% sequentially. Manufacturing in April PMI It occupied a vast territory. Business confidence fell slightly in April, but not significantly, and gross fixed investment in February exceeded expectations.

Furthermore, recently pollThe majority of private sector analysts expect inflation to rise to 4.20% in 2024, up from the 4.10% expected in March, Banxico revealed.

Data shows that Banxico is likely to keep interest rates at a high level of 11.0% for the time being, supporting the peso to encourage foreign capital inflows.

Business Technical analysis: USD/MXN is at the lower end of its short-term range

USD/MXN – 1 cost USD The Mexican peso remains range bound and trending sideways in the short term. Since the crash on April 19, the pair has fluctuated between a low of 16.86 and a high of 17.40.

USD/MXN 4-hour chart

Given the old trading adage that “trend is your friend,” short-term trends are expected to continue until the weight of evidence proves otherwise. USD/MXN tried to break out of that range on Friday, but the bearish pressure was not enough to push it out and the price returned within the range. However, there is a slight bearish bias given that the medium- to long-term trend is bearish and these larger flows impact the short-term outlook.

The Moving Average Convergence Divergence (MACD) indicator is above the signal line, providing a buy signal suggesting that the pair is starting to rise within its range.

Further upside could push USD/MXN to the 4-hour 50 simple moving average (SMA) chart It hit a lower high at 17.06 and then at 17.15. A clear break above the resistance zone around 17.15-17.18 could lead to another rally towards the top of the range.

A decisive breakout of the range, either below the bottom at 16.86 or through the top at 17.40, will change the pair’s directional bias.

A break below the floor could see further downside to the target of 16.50, followed by the April 9 low of 16.26.

Conversely, a breakout would first activate the upside target at 17.67, break the long-term trendline, and then potentially reach a further target near 18.15.

A decisive break is one characterized by a green or red daily candle that is longer than average, breaks above or below the high or low range, and closes near the high or low of the period. . Or a series of three green/red candlesticks penetrating above/below their respective levels.

Business Banxico Frequently Asked Questions

Banco de Mexico, also known as Banxico, is the country’s central bank. Its mission is to maintain the value of Mexico’s currency, the Mexican Peso (MXN), and to set monetary policy. To achieve this objective, its main goal is to keep the inflation rate low and stable within the target level, i.e. at or near 3%, the midpoint of the 2% to 4% tolerance range. It is.

Banxico’s main tool to guide monetary policy is setting interest rates. If the inflation rate exceeds the target, banks will try to contain it by raising interest rates, making borrowing more expensive for households and businesses and cooling the economy. Higher interest rates are generally positive for the Mexican Peso (MXN), as they lead to higher yields and make the Mexican Peso (MXN) a more attractive place for investors. Conversely, when interest rates fall, the Mexican peso tends to depreciate. An important factor is the interest rate differential with the US dollar, or how Banxico is expected to set interest rates compared to the US Federal Reserve (Fed).

Banxico meets eight times a year, and its monetary policy is heavily influenced by the decisions of the US Federal Reserve (Fed). Therefore, the central bank’s decision-making committee typically meets one week after the Fed. In doing so, Banxico reacts to, and sometimes anticipates, monetary policy measures set by the Federal Reserve. For example, in the wake of the COVID-19 pandemic, and before the Federal Reserve decides to raise interest rates, Banxico aims to reduce the likelihood of a significant depreciation of the Mexican peso (MXN) and prevent capital outflows that could destabilize the country. was the first to raise interest rates.

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