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  • A stronger US dollar boosted USD/MXN to the upside, ending a 2-day consolidation range.  
  • Key events ahead: Banxico on Thrusday and US NFP on Friday.  

The Mexican peso dropped sharply during the US session despite higher crude oil prices. The greenback remains supported by Fed rate hike expectations on the back of strong US data. Today, private employment data and non-manufacturing activity indicators showed higher-than-expected numbers. The US dollar rose against majors, particularly versus the yen and also against most emerging market currencies.  

The USD/MXN pair broke above 18.85 and jumped to 19.02, hitting the highest level in six days. Near the end of the session, it was trading around 19.00, having the best daily performance in a month. The greenback continues to rebound after reaching on Monday the strong support area of 18.50.  

On Thursday, the Bank of Mexico will announce its decision on monetary policy. No change in the reference rate is expected (currently at 7.75%). “We expect Banxico to leave the policy rate on hold at 7.75%. MXN OIS rates imply around a 30% chance of a 25bp hike while the Bloomberg survey of 25 analysts reveals that only three are calling for a move. If we are correct then it will be only the second time since the tightening cycle began in December 2015 that Banxico hasn’t followed a Fed hike with a rate increase. NAFTA risk has all but disappeared as the United States, Canada and Mexico finally reached a trilateral trade agreement that will be known as the USMCA. The main stumbling block is now the US congress but we expect the deal to pass whatever the outcome of the US midterm elections”, wrote Rabobank analysts. They expect USD/MXN to trade in the 18.50-19.50 range over the next couple of months.

USD/MXN Technical levels  

The pair is about to post the first daily close above the 20-day moving average since September 12. To the upside, relevant resistance levels are seen at 19.05 (last week highs) followed by 19.15 and 19.30. On the flip side, support could be located at 18.85, 18.70 (Oct 3 low) and 18.60.