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USD/MXN falters as sentiment improves despite rising US bond yields

  • The USD/MXN reverses course and points towards $18.50 in a climate of risk appetite.
  • Inflation in the United States was in line with forecasts, although it remains high.
  • USD/MXN Price Analysis: Break below the 50 day EMA will pave the way towards 18.0000.

The Mexican peso (MXN) affirms a recovery after the banking crisis in the United States (US) appears to have subsided, as a boost in risk appetite propped up global equities. The CBOE Volatility Index (VIX) has fallen from weekly highs of 30.81 to the 23.00 area, while US inflation figures have eased. At the time of writing, the USD/MXN is trading at 18.6200.

USD/MXN falls on improving sentiment

Global stocks resumed higher as concerns about the failure of three banks in the US eased. The US Bureau of Labor Statistics (BLS) revealed US inflation in February was in line with estimates in annual readings. The Consumer Price Index (CPI) rose 6%, while the core CPI was 5.5%. In monthly terms, the CPI was 0.4%, in line with the consensus, while the core CPI rose to 0.5%, above forecasts.

Last week, US Federal Reserve (Fed) Chairman Jerome Powell commented that the Federal Funds Rate (FFR) would peak higher than expected. Furthermore, he stressed that the strength of the incoming data would accelerate the pace of interest rate hikes. However, the recent turmoil in the US banking system has traders repricing a less hawkish Fed amid fears that more institutions could go under.

CME’s FedWatch tool shows that the odds of the Fed raising rates by 25 basis points stand at 86.4%, up from 69.8% last week.

This has caused a reaction in the US fixed income market. US Treasury yields are recovering, with 2-year and 10-year yields each gaining 35 and 6 basis points, respectively. The Dollar Index (DXY), which measures the value of the dollar against a basket of six currencies, rose 0.13% to 103.754.

However, USD/MXN continued to fall amid investors seeking yield as the US-Mexico interest rate differential favors the Mexican currency.

USD/MXN Technical Analysis

From a technical perspective, USD/MXN was neutral, albeit testing the 50-day EMA at 18.6568. Although the pair rallied to a five-week high of 19.1789, buyers failed to hold their gains above the 19.0000 figure. Also, after soaring, the Relative Strength Index (RSI) approached the neutral reading, suggesting that buying pressure is easing.

To the upside, the first resistance for the USD/MXN would be the 50 day EMA, followed by the 100 day EMA at 19.0043. A break of the latter would expose the February 6 high at 19.2905 and the 200 day EMA at 19.4112. On the flip side, the first support for USD/MXN would be 18.5000, followed by the 20-day EMA at 18.4100, followed by the March 13 low at 18.2369.

What is there to watch out for?

Source: Fx Street

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