MEXICAN PESO KEY POINTS:
- Danger aversion and broad-based U.S greenback energy punish rising market currencies
- The Mexican peso weakens for 2 days in a row towards the dollar, however losses could also be transitory
- Mexico’s June CPI knowledge this week might be carefully scrutinize to find out whether or not Banxico will begin an aggressive tightening cycle
The Mexican peso is sustaining heavy losses on Tuesday, weakening for the second day in a row, pressured by broad-based US dollar energy, risk-off sentiment and a big sell-off in oil, a prime export for Mexico (on the time of this writing, USD/MXN is climbing 0.7% to 19.99).
The MXN depreciation, nevertheless, could also be short-term as decrease treasury charges in the US could assist rising market currencies over the medium time period. This morning, the US 10 yr yield sunk briefly to 1.3510% within the wake of the June ISM companies knowledge, reaching its lowest stage since late February. As a reminder, activity in the services sector grew for the 13th consecutive month, however decelerated from its latest peak in Could, an indication that restoration could also be shedding some momentum.
Many traders imagine that moderating financial progress, coupled with a labor market that has not made enough progress in the direction of the Fed’s mandate, could delay any quantitative easing tapering announcement till the top of the yr. This state of affairs could depress long-term treasury yields and increase EMFX throughout the board as charges begin to development increased in lots of of those economies (several EM central banks are beginning tightening cycles to fight inflation).
Turning our consideration to the Mexican economic system, mounting inflationary pressures could lead Banxico to lift borrowing prices at every of its 4 remaining conferences this yr. To raised forecast what the central financial institution may do within the second half of 2021, you will need to hold an in depth eye client value knowledge. On this context, INEGI will launch its June CPI report on Thursday. Any signal that inflation isn’t easing might assist cement expectations of aggressive financial tightening, supporting MXN over the medium time period (a tightening cycle in Mexico will improve the MXN carry benefit, boosting its attraction within the foreign exchange market).
USD/MXN TECHNICAL ANALYSIS
USD/MXN has bounced again from the 19.80 space and now appears to be approaching its 200-day easy transferring common, close to 20.20, a key technical resistance. If bulls handle to push value above that stage, shopping for strain might acquire momentum and drive the change charge in the direction of 20.75, the place the June excessive converges with a 12-month descending trendline.
On the flip facet, if sellers return to the market and USD/MXN pivots decrease, the primary assist seems at 19.80, adopted by the yearly low of 19.55. Additional down, the 19.00 psychological comes into play.
USD/MXN TECHNICAL CHART
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—Written by Diego Colman, DailyFX Market Strategist
Comply with me on Twitter: @DColmanFX