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  • Stronger Greenback drives USD/MXN above critical short-term resistance.  
  • Banxico expected to cut key interest rate on Thursday.  

The USD/MXN rose on Wednesday amid a rally of the US Dollar and also probably boosted by technical factors ahead of tomorrow’s Banxico meeting.  

USD/MXN trims gains, still heads for the highest close in two weeks  

During the European session, the pair broke above the strong resistance area of 19.50 and jumped quickly toward the next critical area of 19.60. It peaked at 19.61 and then pulled back. As of writing, trades at 19.55, slightly above the 20-day moving average and holding at the highest level since September 11.  

The move higher took place amid a rally of the US Dollar across the board. The bullish pressure eased as equity prices in Wall Street bounced higher and remained in positive territory, supported by comments from US President Trump signaling that a deal with China could be reached more quickly than expected. On Tuesday he criticized China while speaking at the UN General Assembly. The impeachment drama is on its early stages in the US, having so far no critical impact on markets.  

Banxico to cut, how much?

Analysts expect a rate cut tomorrow from Banxico of 25bp to 7.75% but a larger cut should not be ruled out considering that the latest inflation numbers showed the CPI below the central bank’s target for the first time in three years. Also, the Mexican Peso has remained relatively steady and the Fed also lowered its monetary policy rate.  

Analysts from Rabobank see a rate cut tomorrow and expect further policy easing with another 25bp cut to 7.50% likely before year-end and a further 200bp of cuts in 2020 taking the policy rate down to 5.50%. “Our Banxico view is, however, partly reliant on our Fed call of one more 25bp cut this year and a further 150bp of cuts in 2020.”

Regarding the Mexican Peso, at Rabobank, they maintain the view that USD/MXN will primarily trade a 19.20 to 19.80 range in the next 1-3 months with the risk firmly skewed to a potential break higher.