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Mexican Peso Weekly Forecast: U.S. Inflation Information Might Spark a Rebound in USD/MXN



  • USD/MXN has fallen considerably for the reason that November excessive, however the tide could also be about to show amid rising U.S. Treasury yields
  • Expectations that the Fed will likely be aggressive in preventing inflation ought to increase the greenback within the close to time period. That mentioned, all eyes will likely be on the December CPI report within the week forward
  • The Mexican peso, in the meantime, faces one other headwind: uncertainty over financial coverage amid the central financial institution’s new management

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The Mexican peso has strengthened considerably over the previous few months, with USD/MXN falling from 21.55 in late November to 20.36 someday this week. Nevertheless, the pattern could quickly change, because the near-term outlook for the U.S. greenback is wanting more and more bullish on account of financial coverage developments in the USA.

At the moment, the market sees the Fed delivering three rate of interest will increase this yr, however a fourth hike is slowly creeping into expectations following the discharge of the December FOMC minutes. As a reminder, the minutes confirmed that the central financial institution is leaning in the direction of elevating the federal funds charge sooner or at a quicker tempo than initially envisioned to sort out red-hot inflation. Policymakers additionally appeared on board to start trimming the financial institution’s portfolio quickly after liftoff, signaling that the stability sheet runoff could proceed far more rapidly than in earlier episodes, a constructive state of affairs for the U.S. foreign money.

The Fed’s hawkish stance will increase the enchantment of the U.S. greenback within the foreign exchange market in early 2022 by placing upward strain on bonds charges. Actually, yields might stage the subsequent leg increased within the coming days after we get the newest inflation studying. We should always have that info on Wednesday, when the U.S. Bureau of Labor Statistics releases final month’s report on shopper costs. That mentioned, December headline CPI is anticipated to speed up to 7.1% y/y from 6.8% y/y in November, its quickest tempo since 1982.

With inflation exhibiting few indicators of easing and at multi-decade highs, buyers are more likely to elevate bets that the Fed will turn out to be extra aggressive in pulling again assist to realize one a part of its mandate: value stability. Financial coverage repricing can quicken the upside strikes in yields (for reference, the 10-year briefly reached 1.8% on Friday, the very best stage in two years), bolstering the buck and dragging down different currencies whose central banks have but to embark on forceful normalization.

In Mexico, the central financial institution has already raised rates of interest a number of instances in 2021, however the tightening cycle might turn out to be shallower and even come to a screeching halt amid new management. Some buyers speculate that Banxico’s new governor, Victoria Rodriguez Ceja, will steer financial coverage in a dovish route, prioritizing financial progress over inflation management, however we do not but know a lot to make broad conclusions concerning the outlook. Nevertheless, this uncertainty, coupled with Fed developments, ought to weigh on the Mexican peso over the subsequent few weeks.

When it comes to technical evaluation, USD/MXN has corrected downwards in current weeks and is now approaching a important flooring within the neighborhood of 20.25, which corresponds to the 200-day SMA. On the identical time, the 10-day RSI is drifting into oversold territory, a scenario that might pave the way in which for a rebound from present ranges within the coming periods. If bulls regain management of the market and the change charge pivots increased, resistance might be seen on the 2022 excessive close to 20.76, adopted by 20.85, the 50-day SMA.

Nevertheless, if sellers proceed to push the value decrease and the 20.25 space is breached decisively, USD/MXN might be on its strategy to check rising trendline assist and the October low close to 20.10 in a matter of days.



USD/MXN chart ready in TradingView


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—Written by Diego Colman, Contributor

DailyFX supplies foreign exchange information and technical evaluation on the tendencies that affect the worldwide foreign money markets.

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