- Mexican peso rises against US Dollar amid an improvement in risk appetite and higher crude oil prices.
- Mexico: signs of weakness from the manufacturing sector.
After hitting on Friday the highest level in almost two weeks boosted by US President Trump comments about closing the southern border, USD/MXN turned to the downside and fell back under 19.20 on Monday.
Near the end of the session, it was trading at daily lows, around 19.18, back below the 20-day moving average. The short-term tone looks for more losses. At 19.10 the next strong support is seen.
A weaker US dollar against emerging market currencies on the back of an improvement in risk sentiment pushed USD/MXN further lower. Not even higher US yields or the rally in USD/JPY capped the downside. Data from Mexico did not affect the peso that was also favored by a rally in crude oil prices. The WTI jumped above $61,00, to the highest in months.
Mexico: Markit PMI shows contraction
The Markit PMI report for March showed signs of weakness. “At 49.8 in March, down from a 13-month high of 52.6 in February, the seasonally adjusted IHS Markit Mexico Manufacturing PMITM highlighted a renewed deterioration in business conditions across the sector. Owing to a strong performance in February, the PMI averaged 51.1 in the opening quarter of 2019, compared to 50.0 in Q4 2018“, the report mentioned.
Pollyanna De Lima, Principal Economist at IHS Markit, said: “The return to contraction of the manufacturing industry is a surprise and denotes a reversal to hopes that the Mexican economy can improve on the relatively modest rate of GDP growth in 2018. The downturn also caused a dent in confidence among firms in the sector”.
According to her, a concern is that the underlying picture remains one of a segment that continues to struggle in the face of subdued demand, both domestically and externally. “A notable slowdown in input price inflation offers some respite to manufacturers who reduced their charges in attempts to secure new work during March.”
USD/MXN Technical outlook
The pair shows at the moment no clear direction, but a consolidation around current levels could signal more losses ahead. Analysts at Commerzbank, point out that a revisit to the February low at 19.02 is expected as long as it holds below the March peak (19.621). “Currently no longer expected failure at the March low at 18.7482 would push the early and mid-October lows at 18.7312/18.5017 to the fore.”
On the upside, they see that a daily close above the March high would point to the September high at 19.68 and also the 20.00 area, but they warn it is not their preferred scenario. The USD/MXN “is expected to stay below the 19.6215 March high in the near future“.
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