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The Mexican Peso (MXN) edges higher on at the start of the new week, continuing the steep rally witnessed in most MXN pairs on Friday, after the Deputy Governor of the Bank of Mexico (Banxico), Irene Espinosa, said she thought the Banxico should keep interest rates at their current high level (11.0%) as the battle with inflation was not yet over.\u00a0<\/p>\n
Her comments were positive for the Mexican Peso as higher interest rates attract more foreign capital inflows. They also contrast with the outlook for many of the Peso\u2019s major peers where earlier interest rate cuts are now either expected or likely.<\/p>\n
At the time of writing, USD\/MXN is trading at 16.60, EUR\/MXN at 18.05 and GBP\/MXN at 21.07.\u00a0<\/p>\n
The Mexican Peso continued its short-term uptrend in most pairs on Friday after Irene Espinosa said she did not see any \u201curgency in cutting interest rates\u201d, according to Milenio.com. She further added<\/a> that the Banxico\u2019s decision to cut interest rates in March had been \u201cpremature\u201d, according to Christian Borjan Valencia, Editor at FXStreet<\/a>.\u00a0<\/p>\n Espinosa’s views are consistent with her stance at the Banxico March meeting when she was the only member of the Banxico board not to vote for the decision to cut interest rates by 0.25% from 11.25%. They also contrast with the views of the Governor of the Banxico Victoria Rodriguez Ceja, according to Milenio.com.\u00a0<\/p>\n Espinosa\u2019s stance diverges from the market\u2019s expectations of monetary policy for the central banks of the Peso\u2019s key counterparts \u2013 the US Dollar (USD), Euro (EUR) and Pound (GBP).\u00a0<\/p>\n Officials at the European Central Bank (ECB)<\/a> have as good as committed to implementing interest rates cut in June; the Bank of England<\/a> (BoE) is widely expected<\/a> to cut rates in August; and whilst officials at the Federal Reserve<\/a> (Fed) have not been as vocal about wanting to cut interest rates amid persistent inflation, recent lower-than-expected CPI data as well as flat Retail Sales for April, increased bets by futures traders of the Fed cutting rates in September, which currently stand at around 65%, according <\/a>to the CME FedWatch tool.\u00a0<\/p>\n On the economic-data front, the Mexican Peso could experience some volatility after the release of Mexican Retail Sales for March at 12:00 GMT on Monday.\u00a0<\/p>\n USD\/MXN \u2013 the value of one US Dollar in Mexican Pesos \u2013 edges lower on Monday after the steep sell-off at the end of the previous week, as traders continue exerting bearish pressure on the pair.\u00a0<\/p>\n <\/a><\/p>\n The USD\/MXN is falling in a short-term downtrend within a descending channel that favors short bets over longs.\u00a0<\/p>\n The next downside target is the conservative price objective calculated for the breakout of the mid-April to May range. This is situated at 16.54, the 0.618 Fibonacci<\/a> ratio of the range’s height extrapolated lower. Further bearishness could even see USD\/MXN reach 16.34, the full height of the range extrapolated lower.\u00a0<\/p>\n The pair is meeting support at the lower base of the channel and could pull back before its next descent.\u00a0<\/p>\n The Relative Strength Index (RSI) momentum indicator is signaling oversold conditions, which indicates traders should not add to their short positions. If the RSI exits oversold and returns to neutral territory above 30, it would be a signal to close those positions as a correction is probably underway. Once the correction ends, however, the descending channel is expected to continue taking prices lower.\u00a0<\/p>\n Given the medium and long-term trends are also bearish, the odds further favor more downside.\u00a0<\/p>\nDivergence with major central banks<\/h3>\n
Technical Analysis: USD\/MXN continues descent<\/h2>\n
USD\/MXN 4-hour Chart\u00a0<\/h3>\n
Economic Indicator<\/h2>\n
Retail Sales (YoY)<\/h3>\n