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  • Mexican Peso drops against US Dollar on Monday manages to hold on top of last week lows.  
  • USD/MXN remains firm above 20.00, above a medium-term negative trendline.  

The USD/MXN pair is consolidating gains on a quiet American session as it trades at 20.13, the highest level of the day. The pair opened the week with a bullish gap but then pulled back finding support at 20.00. It filled the gap and rebounded.  

A stronger US Dollar amid risk aversion boosted the pair that trimmed most of Friday’s losses. USD/MXN continues to trade in the recent trading range above 20.00. From a technical perspective, indicators still favor the greenback.  

The daily and weekly charts show  price above a long-term trendline that stands at 20.10. If it holds on top it would clear the way to more gains. Ahead of the Asian session, resistance is seen at 20.20, 20.25 and then 20.50.  

Could the Mexican peso recover?  

Recent moves in MXN have been driven mostly by external factors. An improvement in risk sentiment will likely stimulate the demand for riskier assets including the Mexican Peso.  

“In the short-run, the MXN weakening and import tariffs imposed by the US to China seems to be stimulating more US imports of Mexican goods. But in case of further escalation of trade war and therefore deceleration of the US economy, then the recent expansion in exports could be reversed. We assume a scenario of moderate economic growth in the US, no further escalation of trade war between the US and China, the continuity of negotiations towards ratification of USMCA trade deal and no import tariffs by the US on Mexican goods, so there is scope for moderate MXN appreciation in the coming quarters“, wrote MUFG analysts.  

According to them, even considering more rate cut from Banxico that could reduce the attractiveness of Mexican bonds, “its carry-trade remains attractive as noted by the relatively higher interest rates in Mexico versus other LatAm economies. As the level of uncertainty abroad is quite high, MXN might show high volatility, but as a trend, we see scope for moderate MXN appreciation.”

Weekly Chart

USD/MXN