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  • Mexican peso down marginally against US Dollar on a quiet Monday.  
  • USD/MXN continues to move sideways around 19.00.
  • Mexico: Inflation report due on Wednesday and Banxico minutes on Thursday.

The USD/MXN pair is rising modestly on Monday on the back of stronger US Dollar, on a low volatility session as Wall Street remains  closed for Memorial Day. It peaked at 19.06 and then pulled back holding at all times above 19.00.  

Over the last hours it has been trading in a small range between 19.03 and 19.06. In the very short-term the pair is moving sideways with no clear signals. On a wider perspective, the bias from a technical perspective favors the downside slightly as USD/MXN holds under the 20-day moving average at 19.06.  

A consolidation below 19.00 could lead to more gains for the MXN and to a test of the 18.90 critical support. On the upside, the 19.10/15 zone is a key short-term support. A break higher would point to more gains and a potential test of 19.30.  

MXN Outlook  

Two critical events of the week will be the release of the quarterly inflation report on Wednesday and the minutes from the latest meeting of the Bank of Mexico on Thursday. With inflation still above the central bank’s target it would be interesting to see how many members dissent with the statement.  

Growth deceleration was confirmed by Q1 preliminary GDP coming in at 1.3% y/y (-0.2% q/q), below the 1.7% y/y (0.2% m/m) recorded in 2018 Q4. At the same time, inflation risks remain present with May inflation (4.4% y/y) increasing above the upper band of the target range of 4.0%. We expect the latest data to widen the discrepancies between board members with respect to inflation risks for the rest of the year. This should prompt a more dovish tone, highlighting the drop in growth prospects. However, we expect a cautious message until at least 2019 Q3, emphasizing stubborn core prices, noting inflation expectations still sitting above Banxico’s 3% target for 2019 and 2020, and local risk surrounding Pemex and the government’s fiscal accounts,” wrote Luis Hurtado, analysts at CICB.  

They expect concerns regarding Pemex, and the fiscal accounts to increase over the coming months as economic activity decelerates, putting further pressure on AMLO’s aggressive spending program for the year. “In the near-term, global trade uncertainties are likely to maintain upward pressure in the US, especially
considering the MXN position’s as a “universal hedge” during episodes of increased volatility. Hence, we maintain our Q2 USDMXN forecast at 19.4.
“