- Mexican peso gains versus the US dollar for the fifth time in a row.
- USD/MXN keeps testing the 18.90 support area.
The USD/MXN pair dropped to 18.89, reaching the lowest level since July 9 and as of writing trades at 18.90. The bearish momentum remains in place as markets remain on a risk-on mode.
On Tuesday, the US Dollar Index rose modestly but emerging market currencies continue to outperform. US data came in better than expected with Industrial Production rising 1.15% in November and also hosing data surpassed expectations.
No economic reports from the US are scheduled for tomorrow, and in Mexico, the key event of the week will be the board meeting of the Bank of Mexico. The central bank is expected to cut rates by 25bps to 7.25%. The easing policy should continue next year, taking into account inflation is on target, the appreciation of the Mexican peso and the stagnated economy.
“Banxico is likely to continue cutting in 2020 and we expect some 50bp moves taking the policy rate down to 4.50% by year-end. This is in contrast to the 6% mode of analyst expectations on Bloomberg, the 6.50% consensus from Banxico’s survey, and the 6.4% implied by the front-end of the rates curve. We expect USD/MXN to primarily trade a 19.20 to 19.60 range in the next 1-3 months”, explained analysts at Rabobank.
Levels to watch
The USD/MXN pair is trading below a long-term bullish uptrend line and currently testing the 18.90 support. Below that level, attention would turn to the 2019 low at 18.74. On the upside, resistance levels are now located at 19.00 and 19.10.
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