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USDMXN Bearish Theme Remains Intact

MEXICO
  • The Mexican peso is continuing its notable outperformance on the day, despite the surge in the dollar and rise in US yields post the strong US employment data. USDMXN dipped as low as 16.4408, taking the pair to its lowest level since late 2015, before paring the move in recent trade.
  • MXN may be getting some support from yesterday’s Banxico minutes, which tilted to the hawkish side. Officials continue to view the risks to inflation as being skewed to the upside, while noting that inflation expectations are still unanchored. Going forward, the board will take a data dependent approach, which will put an emphasis on next week’s March CPI inflation data. These are expected to show an uptick in headline inflation and sticky core services inflation, which could raise doubts about a back-to-back interest rate cut. The 4-5bp rise in the TIIE swaps curve today is consistent with a more cautious Banxico stance.
  • A bearish theme in USDMXN remains intact. The break of earlier support maintains the price sequence of lower lows and lower highs, highlighting a clear downtrend. This opens 16.4218, the 1.236 projection of the Dec 5 - Jan 8 - Jan 17 price swing. On the upside, key resistance has been defined at 16.9473, the Mar 19 high.
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