- Emerging market currencies up sharply against the US dollar.
- USD/MXN breaking long-term uptrend line, could test 2019 lows.
The USD/MXN pair is falling for the ninth time out the last ten trading days. It is trading at 18.93, the lowest level since mid-July and below a long-term trend line, strengthening the bearish scenario.
The slide continues amid an improvement in global risk sentiment and a rally in emerging market (EM) currencies versus the US dollar. The agreement between the US and China added fuel to the rally in equity prices. The greenback remains unable to find support versus EM currencies despite higher US yields.
From a technical perspective, the USD/MXN is trading under a critical support signaling more losses ahead. The price dropped below a trendline from 2017 and is about to post a close clearly below. The next strong support is located at 18.90 and then comes the 2019 low at 18.74.
Banxico meeting on Thursday
The Bank of Mexico will have its Board meeting on Thursday. A 25bps rate cut is expected. Considering the recent appreciation of the Mexican peso and the latest inflation data, there is a possibility of a larger rate cut. At the last meeting, two of the five Board members voted for a 50bps cut.
“As the Mexican economy remains subdued, in addition to the dovish signals from policymakers, we expect the central bank to cut rates another 25 bps at next week’s meeting, and continue the easing cycle into the new year. That said, however, we would not be surprised if policymakers moved forward with a 50 bps cut next week given how weak growth and inflation are at present. Currently, markets are pricing in 143 bps of additional easing over the next year by the Bank of Mexico”, explained analysts at Wells Fargo.
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