Over the last two trading sessions, USD/MXN dropped around 0.8%, with the Mexican peso strengthening as bearish momentum returns. Selling pressure accelerated after Banxico’s latest rate decision, and traders are watching closely for the central bank’s next moves.
Banxico’s Policy Stance
- On September 25, the Bank of Mexico (Banxico) cut rates by 25bps to 7.5%, marking its fifth consecutive reduction.
- The move reflects weak short-term growth and lingering global trade tensions.
- The vote was split, with some policymakers opposing steady cuts due to rising inflation.
- Inflation edged up from 3.51% in July to 3.57% in August, above the 3% target, limiting scope for further aggressive easing.
Despite dovish momentum, Banxico signaled greater caution ahead, implying the rate-cutting cycle could slow if inflation persists.
Peso’s Resilience vs. the U.S. Dollar
- Mexico’s benchmark rate (7.5%) remains well above the Fed’s 4.25%, creating a wide yield differential.
- This spread continues to support peso demand in forex trading strategies, as investors seek higher returns.
- Meanwhile, the U.S. dollar index (DXY) fell from 98.5 to below 98, undermining the greenback’s recovery.
As long as the dollar stays weak, the peso may retain an edge, keeping pressure on USD/MXN.
Technical Outlook – USD/MXN
- Trend: Persistent bearish trend since April; no strong bullish corrections yet.
- RSI: Below 50, confirming bearish momentum.
- MACD: Neutral near the zero line, hinting at indecision.
- Key Levels to Watch:
- 18.21 – Key Support: Break lower could deepen bearish trend.
- 18.50 – Barrier: Aligned with 50-SMA, holding recent consolidation.
- 18.91 – Resistance: Near Ichimoku cloud; break higher risks a short-term rebound.
Market Implications
- Forex traders remain focused on yield spreads and Banxico’s inflation management.
- Indices trading sentiment in emerging markets could improve if peso stability continues.
- Shifts in global risk appetite may also spill over into the crypto market and broader crypto investment flows, as investors rotate between risk assets.
