USD/MXN pulls back modestly after two sharp gains, remains near 20.20

• The Mexican peso remains under pressure against the dollar in the very short term.
• USD/MXN firm above 20.00, after trading at lows in months days ago.

USD/MXN is trading around 20.13, falling slightly. This implies a slight recovery of the Mexican peso after two days with strong declines.

In Wednesday’s session and after the Federal Reserve minutes, USD/MXN climbed to 20.19, the highest level in almost two weeks. It then closed at 20.15, the highest close since March 24.

The advance of the cross was driven by a stronger dollar against most emerging currencies, due to a decline in the price of commodities and, above all, by the expectations of the Fed’s monetary policy.

Fed minutes released on Wednesday showed high chances of back-to-back 50 basis point hikes and the start of a central bank balance sheet unraveling that accelerated the rise in Treasury yields to their highest in years. This remains the key factor behind the dollar’s strength.

On Mexico it was known on Thursday that the consumer price index in March rose 0.99%, and 7.45% compared to a year ago. The data was higher than expected and leaves the Mexican central bank in trouble, since the CPI is far from the target and shows no signs of slowing down.

Levels to consider

Upward, USD/MXN faces resistance at 20.20, and quickly another one at the 20-day moving average at 20.24. A firm return above 20.30 would support the dollar and signal a possible bottom.

In the event of a pullback, the first relevant support is located at 19.98. A drop below could make the Mexican peso strong again. The next barrier is at 19.80.