USDMXN moves to the bottom of the range on weaker Dollar

The US Dollar fell again on Thursday against the Mexican Peso to breach the 20 level again. The chart shows that the 19.7241 level had been a significant support previously, so a continued decline of USDMXN to that support, for now, makes sense. But the possibility to form a double bottom in that area and rebound again is also very strong. However, if the downside continues then it will target the support of 19.5471 from the January 2021 low price or project for FE 138.2% at 19.5851 in the short term (from drawdown 20.6355–19.902 and 20.4705). The scenario will be different, if this exotic pair breaks through the major ascending trendline, then a major downtrend reversal will open for the important support of 18.5335 first.

On the upside, the 20.4705 level should offer some resistance as the 200-day EMA is near there. A break of this resistance level will still see further resistance at 20.6355. A move above the 20.6355 level would be a very bullish sign for the Greenback and may see the Dollar strengthen against most of its other currencies.

Banxico’s higher interest rate has provided some interest in the carry trade and attracted inflows since it started its rise in June 2021 by 0.25% from 4.00% in Feb 2021 to 4.25%. Until now Banxico has increased 8 times in a row to currently 7.00% in an effort to combat hot inflation. Mexico’s annual inflation rate rose to 7.68% in April 2022, an increase from 7.45% in March, slightly below market expectations of 7.72%. This is the highest figure since January 2001.

USDMXN, D1

The peso tends to strengthen in close corelation to the crude oil market, which has shown strength lately, and the bank always balances policy with the Fed. If there is a break below the 19.5471 level then it will most likely have something to do with falling yields in America or oil maneuvering to the upside.

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Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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