USD/MXN at two weeks lows, about to break below 22.00

• Mexican peso among top performers on Friday after Banxico meeting.
• USD/MXN weakens further during the American session as Wall Street turns positive.

The USD/MXN is trading at the lowest level in two weeks at the 22.00 area. It is falling for the fourth consecutive day as the Mexican peso outperforms on Friday following a rate cut from Banxico.

An improvement in risk sentiment in Wall Street, where the Dow Jones is now in positive territory up 0.20%, adds to weakness in USD/MXN. The pair seems poised to break under 22.00. The next support level is seen at 21.90 and then, the next strong barrier emerges at the 21.50 zone.

Only a reversal in USD/MXN, with the dollar recovering levels above 22.30 would alleviate the bearish pressure. Above the next resistance is located at 22.60.

Banxico cuts rates, will likely continue to do

On Thursday, as expected, the Bank of Mexico cut the key interest rate by 50 basis points to 4.5%: One board member asked for a 25bps cut. Analysts at BBVA point out the Board brushed aside the recent inflation rise and clearly signalled that inflation is not a worry for monetary policymakers

“The dovish statement along with a deep recession and a widening output gap clearly suggests further monetary policy easing”, noted BBVA analyst. They continue to expect a further 150bp of rate cuts in the easing cycle that started a year ago, taking the policy rate to 3.00% by year. “We are sticking with our call of 50bp cuts in the policy rate in each of the three remaining scheduled meetings in 2020.”

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