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USD/MXN rebounds after hitting weekly lows near 18.70; Mexican Peso outperforms EM peers USD/MXN rebounds after hitting weekly lows near 18.70; Mexican Peso outperforms EM peers

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Mexican Peso recovers after election sell-off – Crypto News

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  • The Mexican Peso extends its recovery into a second day supported by broad risk appetite.
  • The rebound started following market-soothing comments from the Mexican Finmin that the new government would act responsibly. 
  • USD/MXN approaches 17.34, a key support level. The short-term directional bias is unclear.  

The Mexican Peso (MXN) is rising in its key pairs on Thursday as a positive risk tone prevails and helps support the sentiment-sensitive Peso. MXN continues clawing back losses after the 5% depreciation sparked by the Mexican election on Sunday.

EUR/MXN is trading up 0.7% at 19.16, just after the European Central Bank (ECB) decided at its June meeting to cut interest rates by 0.25%, bringing its main refinancing rate down to 4.25%. 

USD/MXN is exchanging hands at 17.58, meanwhile, and GBP/MXN at 22.49.

Mexican Peso extends rebound on market optimism

The Mexican Peso rises on Thursday as a wave of risk-on breaks across markets. Wednesday’s US session saw the S&P 500 climb to a new record high of 5,354, the Nasdaq hit a new all-time high of 19,044 and the “magnificent seven” peak after posting 2.24% gains. The surge was driven by a mixture of renewed tech optimism and positive May Institute for Supply Management’s (ISM) Services Purchasing Managers Index (PMI) data for the US.

The positive market mood carried on into the Asian session, with gains for most indices bar the Shanghai Composite. The European bourses are opening on a positive note too, with all major indexes rising off the starting line.

The Mexican Peso’s recovery began late Tuesday after the Mexican Finance Minister Rogelio Ramírez De la O gave an interview in which he sought to calm investor fears about the new left-leaning Morena administration. The party swept to power during Sunday’s elections. 

Although not all the votes have been counted – final results are expected on June 8  – estimates suggest Morena has won a supermajority (over two-thirds) in the lower, and possibly the upper, houses of the Mexican parliament. Morena’s new leader Dr. Claudia Sheinbaum has been confirmed as the next president of Mexico. 

The Mexican Peso dropped over 5% following the news of Morena’s election victory as investors feared Sheinbaum’s supermajority could enact changes to the constitution that might be market-unfriendly. 

On the data front, Mexican Auto Exports rose 13.0% year-over-year in May whilst Auto Production rose 4.9% for the same period; this was lower than April’s 14.4% for exports and 21.7% for production. 

On Wednesday, Mexican Consumer Confidence for May showed a decline to 46.7 – a seven-month low – from a downwardly revised 47.2 in April, on Wednesday, according to data from INEGI.

Technical Analysis: USD/MXN continues correcting down

USD/MXN continues pulling back after soaring to 18.12 (100-week Simple Moving Average) on Tuesday. It is now trading in the 17.40s, close to the first potential key support level at 17.34 – the midpoint of the long green Marubozu Japanese candlestick pattern formed on Monday’s upsurge. 

USD/MXN Daily Chart 

A break below 17.34 would be a bearish sign. The old trendline in the lower 17.00s would then come into view to offer support. If that too was broken, it would confirm a bearish reversal both on a short and intermediate-term basis.

USD/MXN has now moved out of the overbought zone on the Relative Strength Index (RSI), signaling a deeper correction is in play. At the same time, the pair is no longer overbought, which means it could also start rising again. 

The deep pullback over the last two days means the short-term bull trend is now doubtful. It is possible to argue that the short-term trend has reversed, however, such was the strength of the moves up on Monday and Tuesday that it could also be argued that bulls continue to have the edge.

What is clear is that there are no signs yet that the correction lower has found a floor. 

A key battleground for bulls would be at 17.54, the June 4 higher low, which is known as a “Bearish Breaker”. The future direction of the short-term trend could be decided depending on who prevails at 17.54 assuming bulls mount a recovery attempt. 

Assuming bulls succeed, the pair could rise to 17.71, 18.19 (June 4 high) and then 18.49 (October 2023 high). 

The intermediate-term trend is still bullish, but the long-term trend is probably still bearish, suggesting moderate background risks continue. 

Mexican Peso FAQs

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

 

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