The Mexican peso stabilizes after falling two days in a row

• The Mexican Peso is trading stable after two consecutive days of weakening.
• The comments of the Governor of Banxico and the solid economic data of its main peers weigh on the Peso.
• Traders await US CPI data, while USD/MXN reaches a key technical resistance level.

The Mexican Peso (MXN) operates little changed during the European session on Wednesday, as markets prepare for the publication of the United States Consumer Price Index (CPI) data for April, the main economic data of the day. and market sentiment stabilizes.

The Peso has been weakening for two consecutive days in most of its peers, due to the comments of the Governor of the Bank of Mexico (Banxico), Victoria Rodríguez Ceja, and the solid economic data of its rivals.

At the time of writing, the USD/MXN is encountering major technical resistance at 16.85, EUR/MXN is trading at 18.27 and GBP/MXN at 21.24.

The Mexican peso remains waiting for the US CPI

The Mexican peso is moving cautiously pending data from the US Consumer Price Index, which could change the outlook for interest rates in the US and the US dollar.

Analysts expect the headline CPI to register a monthly increase of 0.4% in April and the underlying CPI to increase 0.3%. This would translate into increases of 3.4% and 3.6% respectively in year-on-year terms, which would represent a slowdown with respect to the previous month's readings.

A higher-than-expected result could further delay the Federal Reserve's (Fed) plans to cut interest rates, which would be a setback for the US dollar (USD) and a rise in USD/MXN. The opposite would occur with a result lower than expected.

In Europe, meanwhile, preliminary first-quarter Gross Domestic Product (GDP) data is about to be released and could weigh on the EUR/MXN if it deviates substantially from economists' expectations of 0 GDP growth. .3% in the first quarter in quarterly terms, and 0.4% annually.

The Mexican Peso weakens for two consecutive days

The Mexican peso ended Tuesday in the red, falling for the second consecutive day in its most traded peers.

The decline was partly due to comments by Bank of Mexico Governor Victoria Rodríguez Ceja on Monday, who suggested that Banxico could consider cutting interest rates in June. The expectation of lower interest rates is negative for a currency as it reduces foreign capital inflows.

Ceja commented: “We could evaluate downward adjustments” to the main reference rate at Banxico's monetary policy meeting on June 27. Likewise, he noted that while headline inflation had continued to rise, underlying prices had not, but much depended on the evolution of inflationary prospects, reported Christian Borjan Valencia, editor of FXstreet.

Banxico cut its policy rate from 11.25% to 11.00% at the March meeting, the first rate cut since 2021. However, it chose to keep the policy rate unchanged at the May meeting due to the persistence of inflationary forces.

Technical Analysis: USD/MXN Pullback Reaches Key Resistance Level

The USD/MXN – value of one US dollar in Mexican pesos – has reached a key resistance level around 16.86, which corresponds to the base of the range in which it traded during the second half of April and the first half of May.

Previously, USD/MXN had broken out of range and dropped sharply to a low of 16.72 on Friday, May 10; However, it stalled and reversed course. Since then, the recovery has been constant.

USD/MXN 4-hour chart

The recovery move has now met resistance from the bottom of the previous range. The move could be what technical analysts call a “throwback”: a temporary bounce that occurs after breakouts in which the price returns to the original breakout level to “blow a kiss” one last time before moving on. down.

If this is the case, the pair is likely to soon resume its downtrend and eventually surpass the May 10 lows before reaching the conservative breakout target, the 0.681 Fibonacci ratio of the extrapolated downward range height, in 16.54. A further downtrend could even reach 16.34, the full height of the extrapolated downward range.

A break below the May 10 lows at 16.72 would further confirm the downward continuation.

Since the medium and long-term trends are bearish, the odds further favor the downside for the pair in line with those trends.

A decisive break within the range, however, would reverse the short-term downtrend and suggest the pair is moving higher. Furthermore, it would defeat the objectives of the breakup.

A decisive breakout would be accompanied by a longer-than-normal candlestick that closes near its high or three consecutive candlesticks.