The Mexican peso finds a bottom after depreciating more than 8.0% last week

• The Mexican Peso fell more than 8.0% against its key pairs last week as a result of electoral volatility.
• The Peso weakens further after a speech by outgoing President López Obrador argues that radical reforms are required to eliminate endemic corruption.
• USD/MXN continues to rise and is now trading above 18.00.

The Mexican Peso (MXN) makes a marginal recovery on Monday after losing more than 8.0% in the previous week in its most traded peers. The slight bounce is likely due to the bears covering their shorts and taking profits after the previous week’s outsized move.

All the votes from the Mexican elections have been counted and reveal that the Morena party has won a supermajority in Congress, as expected, but they are two seats away from one in the Senate. Morena and his allies won 372 of the 500 seats in Congress and 83 of the 128 seats in the Senate, according to Reuters.

The result will still allow the administration of President-elect Claudia Sheinbaum to push through a controversial package of reforms that are shaking markets and leading to a depreciation of the Peso. However, they will have to win over some opposition senators for their reforms to pass both chambers.

USD/MXN is at 18.34 at the time of writing, EUR/MXN is trading at 19.75 and GBP/MXN at 23.34.

The Mexican peso weakens after AMLO’s diatribe

The post-election selloff in the Mexican Peso gained new momentum on Friday following comments from outgoing President Andrés Manuel López Obrador (AMLO) during his daily morning press conference.

It was essential to promote reforms of the judiciary and dissolve autonomous bodies, such as the INAI – the government’s transparency agency – because, in AMLO’s words, “The judiciary is hijacked, the service is taken over by a minority of those at the top. Now I have said it here, and they know it very well. It is even shameful, but there are ministers who are like employees of large corporations,” according to El Financiero.

Inflation data, also released at the end of last week, was mixed, showing a rise in headline inflation to 4.69% year-on-year in May from 4.65% in April, but a drop in core inflation to 4. .21% year-on-year from 4.37%.

Technical analysis: USD/MXN continues to rise

USD/MXN – the value of one US Dollar in Mexican Pesos – surpasses the 18.00 mark and reaches a peak of 18.46, close to 18.49 in October 2023.

USD/MXN Daily Chart

The upward extension suggests that the short and medium term trends are bullish, and since “the trend is your friend”, the price is likely to continue rising.

The pair is now close to touching the key resistance level at 18.49, the October 2023 highs. A break above that level will likely take it even higher, with the next target potentially sitting at 19.22 (highs March 2023).

The long-term trend likely remains bearish, suggesting that moderate underlying risks remain.