- The Mexican peso trades mixed after rising for four consecutive days.
- The gains came from a Supreme Court move to reexamine controversial reforms and comments from a Banxico official.
- USD/MXN falls to critical support at the base of its ascending channel and the 50-day SMA.
The Mexican Peso (MXN) fluctuates between small gains and losses on Friday during the European session after accumulating four consecutive days of increases in its three most traded pairs: USD/MXN, EUR/MXN and GBP/MXN.
The peso’s strength initially came from Bank of Mexico (Banxico) Deputy Governor Jonathan Heath, who commented on Tuesday that interest rates should stay higher for “longer.” Higher interest rates encourage greater inflows of foreign capital and strengthen the Peso. Later in the week, news of a Supreme Court decision to review and potentially revise controversial reforms to the judiciary encouraged the rally to continue.
It should be noted that the Peso is now at the level of the 50-day simple moving average (SMA) in its three key pairs, a technical indicator that institutional investors take into account during their decision making.
The Mexican peso appreciates after the Supreme Court motion
The Peso rebounded on Thursday following news that Mexico’s 11 Supreme Court judges voted by a majority of eight to three to re-examine controversial constitutional reforms to the judiciary, approved by the government in September. The measure could block the implementation of the reforms, which seek to have judges elected instead of appointed, according to El Financiero.
Mexican financial markets took a hit in June following the election of the Morena-led government amid investor concerns about these and other proposed reforms. They were a factor that contributed to a 10% depreciation of the Mexican Peso. Critics argued that they threatened the independence of the judiciary, were undemocratic and endangered foreign investment.
The new laws, which were voted by the Mexican Parliament in September, remain a risk for Mexican assets, including the Peso, as advisory service Capital Economics highlighted in a recent note:
“At this time, Mexico has an investment grade rating from all three major rating agencies and we doubt this will change in the near term,” wrote Kimberley Sperrfechter, Emerging Markets Economist at Capital Economics, adding, “That said, if judicial reform leads to a significant deterioration in the quality of institutions and weaker growth and fiscal policy is not adjusted sufficiently, there is a risk that Mexico will be downgraded in the medium term.”
The decision to reexamine the reforms has been led by Supreme Court Judge Juan Luis González Alcántara. It is based on the legal principle that the new laws risk undermining the independence of Mexico’s judiciary.
Although the Supreme Court does not have the power to overturn laws, it can decide whether they need to be reviewed. Morena’s Mexico City chief minister, Martí Luis Batres, described the move as a “coup d’état.”
Technical Analysis: USD/MXN falls to the 50-day moving average
USD/MXN falls to the base of its ascending channel and the 50-day SMA level, a key line for traders.
USD/MXN Daily Chart
USD/MXN is expected to find support at this level, and there is a chance that it will rebound and start moving back up within the range. Medium and long-term trends are now bullish, and given the technical analysis principle that “the trend is your friend”, the probabilities favor a recovery and continuation to the upside.
That said, the short-term trend is bearish, and the GBP/MXN cross has already broken below its ascending channel, which can sometimes be a “warning sign” for other Peso pairs.
A decisive break below the channel and the 50-day SMA therefore risks threatening the medium-term uptrend in USD/MXN. Such a move would be characterized by a longer-than-usual bearish candle piercing clearly below the channel line and SMA, and closing near its low. Such a breakout would clear the way for losses, first to 19.00 (Aug 23 low, round number) and then 18.60, the level of the 100-day SMA.
The Mexican Peso FAQs
The Mexican Peso is the legal tender of Mexico. The MXN is the most traded currency in Latin America and the third most traded on the American continent. The Mexican Peso is the first currency in the world to use the $ sign, prior to the later use of the Dollar. The Mexican Peso or MXN is divided into 100 cents.
Banxico is the Bank of Mexico, the country’s central bank. Created in 1925, it provides the national currency, the MXN, and its priority objective is to preserve its value over time. In addition, the Bank of Mexico manages the country’s international reserves, acts as a lender of last resort to the banks and advises the government economically and financially. Banxico uses the tools and techniques of monetary policy to meet its objective.
When inflation is high, the value of the Mexican Peso (MXN) tends to decrease. This implies an increase in the cost of living for Mexicans that affects their ability to invest and save. At a general level, inflation affects the Mexican economy because Mexico imports a significant amount of final consumption products, such as gas, fuel, food, clothing, etc., and a large amount of production inputs. On the other hand, the higher the inflation and debt, the less attractive the country is for investors.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
The exchange rate between the USD and the MXN affects imports and exports between the United States and Mexico, and may affect demand and trade flows. The price of the Dollar against the Mexican Peso is affected by factors such as monetary policy, interest rates, the consumer price index, economic growth and some geopolitical decisions.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
