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  • Mexican peso ends days of consolidation against the US dollar.
  • The greenback is rising sharply also versus ARS and BRL.

The Mexican peso dropped on Monday to the lowest level since June against the US dollar. The greenback rose sharply against Emerging market currencies, particularly the Argentine peso and the Brazilian real.

The USD/MXN pair bottomed during the European session at 20.33 and since then moved with a bullish bias. It accelerated during the US session after rising back above 20.50. It peaked at 20.59, the highest level since June. It is trading at 20.57, consolidating most of the day’s gains and on its way to the highest close in five months.

From a technical perspective, a daily close significantly above 20.50 would signal more gains ahead, with a potential target at 20.65/70. If it continues to rise, attention will turn to 2018 highs, slightly below 21.00.

AMLO getting ready

Today the peso is not the worst performer but remains affected by local developments. President-elect Andres Manuel Lopez Obrador will take office on Saturday. A new referendum was held, creating more nervousness about his future policies. The first referendum about the new international airport under construction led to a depreciation of the peso and uncertainty about AMLO’s plans.

Meanwhile, the Bank of Mexico rose the key interest rate to 8.0%, the highest in a decade in order to keep inflation expectations anchored. On Thursday, the minutes of the meeting will be released. Mexican government bond yields remain at the highest level since the 2008/09 financial crisis with the 10-year above 9.0%. The fundamental outlook does not look constructive in the short-term for Mexican assets.