USD/MXN soars to 19.24 but retreats after Mexico prolongs steel tariffs

• Mexican peso tumbles but then recovers most of its losses.  
• A 6-month tariffs extension for steel coming from countries without a trade agreement triggered the decline.  

The Mexican peso dropped sharply across the board after the announcement that Mexico will renew the 15% steel tariffs with countries that don’t have a trade agreement with Mexico. The USD/MXN climbed from 19.10 to 19.24 but as of writing was trading back at 19.13, at the same level it closed on Friday.  

Undersecretary of Industry and Commerce, Ernesto Acevedo, mentioned tariffs would be introduced by Presidential decree. They see global steel overcapacity. According to him, Mexico is suffering from dumping from China and the US. The tariffs would be 15% on steel and 25-to 30% on textiles.  

Earlier today, a report showed that the Mexican economy cooled in the fourth quarter slightly more than expected after December showed the lowest activity in nine months. GDP expanded 0.2% (below the 0.3% of the previous estimate) during the fourth quarter and 1.7% from a year ago.  

Technical outlook  

During the European session, USD/MXN dropped to test the 19.00 area but failed to break lower and bounced to the upside, removing some of the strength of the Mexican peso. A close below 19.10 would leave the 19.00 zone exposed.  

Analysts at Commerzbank, hold a neutral to negative bias in the USD/MXN over the medium term.  “USD/MXN’s bounce from the January low at 18.8787 and the 10-month uptrend at 19.00 and the 5-year uptrend at 18.95 has been tepid at best and rallies have been curtailed by the 200-day ma at 19.4597. This leaves the bias still neutral to negative and below here will target the mid-October low at 18.7312 and the August and October troughs as well as the 200 week moving average at 18.49. This area we expect to hold, at least for a few days or so.” They see that the immediate downside pressure will be maintained while below the January 22 high at 19.2410.