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  • Mexican peso gains versus US dollar for second-day in-a-row.  
  • Greenback continues to retreat against EM currencies after Thursday’s rally.  

The USD/MXN pair dropped on Monday and extended the decline from the highest level in two months it reached last week above 19.60. Near the end of the session, it trades at daily lows at 19.38, down 0.50% for the day.  

Last week’s pressure over EM currencies eased somewhat today: the ARS appreciated favoured by the last Friday’s rise of interest rates. The RMB remained steady after this weekend’s release
of China’s inflation, in line with expectations. On another front, the TRY depreciated slightly amid disappointing GDP growth data. Latam currencies also benefited from increasing oil prices, on the back of the potential extension of the cut in oil supply and Saudi Arabia’s willingness to cut oil production further than requested,
“ wrote analyst at BBVA.  

The move to the downside in USD/MXN took place amid a decline of the greenback across the board. US economic data failed to offer support to the dollar. Market participants now focus their attention on Brexit development ahead of Tuesday crucial vote. In the US, CPI data is due.  

Mexico reports January IP Wednesday which is expected to contract -2.0% y/y vs. -2.5% in December. Inflation has fallen back within the 2-4% target range, but the vulnerable peso is likely to prevent the central bank from cutting rates anytime soon. Next policy meeting is March 28, no change is expected then“, said BBH analysts.

USD/MXN Technical outlook  

The pair continues to move within an ascendant channel. Last week the upside was capped by the upper limited. The key support is the 19.20/25 region, a short-term uptrend line and also where the 20-day moving average stands. A close below would signal more losses for the greenback, exposing 19.00.  

To recover momentum the US dollar needs to regain levels on top of 19.45. Above, the next barrier is 19.60; if broken the pair would target the 19.85 area.