USD / MXN falls below 20.70, at one-month lows

• Emerging market currencies are gaining ground amid appetite for risk.
• USD / MXN points more to the downside, particularly below 20.65.

The USD/MXN opera around 20.65, the lowest level in a month. A weaker dollar across the board and the tone of risk in financial markets are supporting the Mexican peso.

The pair is testing levels below 20.70 and is on its way to the lowest close since November 27. A consolidation below 20.65 would point to further losses with the next strong support at 20.45 / 60. A recovery above 20.70 should ease the bearish tone, while above 20.90, the USD could strengthen.

Data from Mexico and the US.

In the US, many economic reports were published. Personal spending increased 0.6% in November, in line with the market consensus, while the underlying PCE advanced at an annual rate of 4.7% above the 4.5% expected. The Labor Department reported that Initial Unemployment Claims reached 205,000, unchanged from the previous week. The preliminary reading of durable goods orders for November showed a higher than expected gain of 2.5%. The University of Michigan’s December consumer sentiment reading (final) was 70.6. New home sales soared 12.4% in November, recovering from an 8.4% drop in October.

The key figure in Mexico was positive, as the Consumer Price Index for mid-December showed a reading lower than expected at 7.45% (annually), below the 7.70% of the market consensus, but it is still the highest. in twenty years. Higher inflation pushed Banco de México to raise rates by 50bps last week.

“The next policy meeting is on February 10 and another 50 bp hike to 6.0% seems likely if price pressures remain high. The swap market expects the policy rate to peak at 7.50% by the end of 2022 before falling slightly in 2023. This may underestimate Banxico’s need for adjustment, “said analysts at Brown Brother Harriman.

Technical levels