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  • US dollar bounced to the upside against the Mexican peso but held  below previous highs.  
  • Cautions tone among emerging markets weigh on MXN.  

The USD/MXN pulled back yesterday and traded momentarily  below 19.00 but rose back above and today climbed to 19.10. As of writing trades at 19.08, up for the day and moving sideways in the range between 19.00 – 19.10. Today’s retreat found support again around 19.00. The cautious tone around emerging markets continues to offer support to the greenback in the short term.  

The key level to the upside is seen around 19.15/20, the confluence of a resistance area and the 20-day moving average. A break higher could signal that a bottom around 18.70 is in place. While a slide back below 18.95 would strengthen the Mexican peso.  

From a fundamental perspective, analysts at CIBC, expect that MXN could find relief in the short-term, “as rating agencies have likely adjusted their outlooks and ratings, adopting any ratings action won’t happen until H2 at the earliest. Our medium- and long-term view is less optimistic, as the high cost of carry continues to be the lynchpin of MXN. But, that cushion is expected to begin eroding by the second half of the year.“

Banxico meeting on Thursday  

The Bank of Mexico will meet on Thursday. It is expected to keep rates unchanged at  8.25%. “CPI rose 3.9% y/y in February, back in the 2-4% target range for the first time since December 2016. However, it is too soon to contemplate a rate cut. Consensus sees the first cut in early 2020, but much will depend on external factors and the peso”, said BBH analysts.