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  • Mexican peso extends gains versus US dollar and confirms bullish outlook.  
  • Weaker US dollar, risk sentiment and higher crude oil prices weigh on USD/MXN.  

The USD/MXN pair is falling for the third day in-a-row and lost ground in seven out of the last eight trading days. It is about to post the lowest daily close since mid-January. The Mexican peso is among the top performers in the world over the last five days.  

Today the pair bottomed at 18.98 and then bounced modestly back to the 19.00 area where it was trading. So far the Mexican peso has been unable to push it further to the downside below 19.00 but the outlook favors more losses ahead, particularly if it manages to hold below the mentioned level.  

The next key level to the downside is seen at 18.87 (year-to-day low) and a break lower could clear the way to more losses, targeting 18.70. On the upside, now 19.10 and 19.20 are the immediate resistance levels.  

The chart looks bearish after USD/MXN broke yesterday an uptrend line and as the 20-day moving average turns south.  

The decline over the last few days started after a spike to 19.62, a 2-month high. The main driver has been a weaker US dollar and an improvement in risk sentiment toward emerging markets. Also higher crude oil prices (WTI up 4% over the last five days) boosted the MXN.  

Fed, inflation and Banxico  

On Wednesday, the Federal Reserve will announced its decision on monetary policy. No change in rates is expected and new economic projections will be presented. If the meeting is titled to the dovish side compared to market expectations, it could boost risk appetite, favoring the Mexican peso.  

Mexico reports mid-March CPI Friday, which is expected to rise 3.98% y/y. If so, inflation would remain within the 2-4% target range. Next policy meeting is March 28 and rates are likely to be kept steady at 8.25%. Consensus sees the first cut coming in early 2020 but we think it will depend on external factors and the peso“, said BBH analysts.