USD/MXN falls sharply towards $19.60 due to the reversal of the dollar

• The dollar collapses after the publication of inflation data in the United States.
• The Mexican peso registers the best day in months against the dollar.
• The USD/MXN falls below 19.80 awaiting the Fed and Banxico.

The USD/MXN pair falls sharply this Tuesday amid risk appetite and general weakness in the US dollar. The pair reversed sharply from monthly highs after the release of US inflation figures.

The US Consumer Price Index rose below expectations in November, triggering a rally in Treasuries and a sharp drop in the dollar. Attention now turns to the FOMC meeting. On Wednesday, the Federal Reserve will announce its decision on monetary policy. A rate hike of 50 basis points is expected.

On Thursday the Bank of Mexico meets. At the last monetary policy meeting, held on November 10, the bank raised rates 75 basis points to 10%. The vote was 4-1, with Lieutenant Governor Esquivel voting in favor of a minor increase of 50 basis points. The bank stated that the magnitude of future hikes will depend on circumstances, suggesting a greater reliance on data. Since then, headline inflation fell to 7.80% year-on-year in November, but core inflation continues to accelerate to new highs. The swap market is valuing a maximum of the official interest rate close to 10.75%,” explained analysts at Brown Brothers Harriman.

USD/MXN is facing strong resistance near 19.80

USD/MXN’s recovery from the lowest level in years near 19.00 peaked on Monday at 19.92. It then started to pull back but was unable to break above the 19.80 level. It then started to fall as it failed to consolidate above the key 19.80 zone and was also rejected above the 100 SMA (currently at 19.88).

For now, a consolidation between 19.60 and 19.80 seems likely. A break below 19.60 should strengthen the Mexican peso, which could head towards the 20-day SMA at 19.47.

USD/MXN Technical Levels