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USD / MXN Falls As Market Prices Fall Despite Banxico’s Rejection of Inflation

By on May 16, 2021 0

USD / MXN Forecast: Bearish

The USD / MXN started the week again on a bullish bias as the US dollar regained its buying momentum as inflation fears pushed bond yields up to the upper limits of their post-pandemic range. Stronger-than-expected CPI data was enough to prompt investors to take refuge from inflationary pressures, causing the USD / MXN to rebound towards its Fibonacci at 76.4% at 20.18.

But the pair quickly reversed lower as stocks were able to regain positive momentum in the afternoon, dragging the US dollar lower. Then came the Banxico interest rate decision meeting, where rates remained unchanged at 4% as the central bank bets on the recent temporary spike in inflation. In all fairness, I expected the wording to be more hawkish, pointing to a gradual unwinding of pandemic-induced QE, but traders seemed to think avoiding a rate cut was enough for now.

USD / MXN fell to 19.91 after the meeting ended, just below its strong support at 19.87, but the pair continued to fall in Friday’s session, falling below 19.78 for the first time since January. This is likely due to the fact that Banxico has managed to strike a balance between growing inflation expectations and attempting to achieve a strong economic recovery, despite minimizing the risks of persistent inflation.

According to Thursday’s statement, monetary policy is likely to remain unchanged for the immediate future, although money markets are starting to assess a 50% chance of a 25 basis point hike in the next six months. , which would put the Mexican peso back in the spotlight. looking for a carry trade return.

USD / MXN Levels

USD / MXN sellers managed to break through some strong support areas last week, but the downward movement appears to be slightly exhausted in the near term. After falling below 19.80, the next benchmark is 19.68, an area where the bearish momentum was interrupted in December 2020. I wouldn’t be surprised if the pair drifts higher towards the 20 mark. pesos to start the week as it usually corrects after a steep decline to end the week, but the long-term outlook continues to be bearish.

USD / MXN 4 hour chart

Fibonacci Confluence on FX Pairs

— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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