USD/MXN rebounds near the psychological barrier of 18.00 amid the nationalization of assets in Mexico

• USD/MXN hits three-week highs amid measures taken by the Mexican government, creating uncertainty in the business community and prompting outflows of the Mexican Peso.
• Despite positive talks between President Biden and House Speaker McCarthy, the US debt ceiling deal remains elusive, casting a shadow over US economic data. and causes a recession in US stocks.
• The recent nationalization measures in Mexico caused concern among the business community and had a negative impact on the recovery of the USD/MXN.

He USD/MXN It reached a new three-week high at the edge of the psychological barrier of 18.0000, around 17.9976, supported by several factors. First, the US debt ceiling discussion is keeping investors on edge, prompting a flight to a safe haven. Likewise, uncertainty in the business community in Mexico, as the government began to seize private land and railways, triggered currency outflows from emerging markets. At the time of writing, the USD/MXN is trading at 17.9489, up 0.34% on the day.

The flight to safety bolstered the USD/MXN as US bond yields rose and the Mexican government’s measures generated uncertainty among the national and international business community.

US stocks continued their downward trend as US debt ceiling discussions have overshadowed US economic data. The national debt has cast a shadow over other debates, despite positive assertions by US President Joe Biden and House Speaker Kevin McCarthy that their talks on Monday were fruitful. However, the road to a final agreement still seems winding and distant.

Reflections of the uncertain political environment in the US are supporting the dollar as Treasury yields continue to rise, with the 10-year yield reaching 3,726%. This creates an adverse environment for the recovery of the USD/MXN, which remains under pressure amid internal problems in Mexico.

Over the weekend, news headlines said that the Mexican government led by President Andrés Manuel López Obrador, known as AMLO, “nationalized” a stretch of highway in the state of Veracruz, operated by Grupo México, a private company . That weighed on the company’s actions, since its main shareholder, Germán Larrea, one of the bidders for Citigroup’s retail branch in Mexico, said that he would withdraw from the offer, stating that “I am not going to pay 7,000 million dollars for something that can be taken from me tomorrow“, according to a tweet by Darío Celis, a Mexican reporter for El Financiero.

Meanwhile, on Monday, AMLO expropriated privately owned land in the State of Mexico to build a suburban train three days after seizing part of a railway line owned by Germán Larrea’s Grupo México. AMLO’s recent decisions are raising concerns among the business community in Mexico, as AMLO is contradicting campaign promises that he would not expropriate private property.

Against this backdrop, USD/MXN has weakened more than 3% since last Tuesday, when the pair hit a fresh multi-year low at 17.4038. USD/MXN, in its recovery, has recaptured the 20-day EMA at 17.8007 and is approaching the psychological level of 18.0000.

As for the US data, the final readings of the S&P Global PMI indices for May are of particular interest. The surprising drop in the Manufacturing Index to 48.5, contrary to estimates and the previous reading of over 50, is offset by a rise in the Services Index to 55.1. The Composite Index stood at 54.5, and the rebound in services slowed its advance.

New home sales in the US have skyrocketed to a level not seen in 13 months. With a rise of 4.1% or 683,000 units in April, it marked the most important figure since March of the previous year, according to the US Department of Commerce.

Apart from this, USD/MXN traders will continue to watch for upcoming events, such as Mexico’s mid-month inflation report, which sees the core CPI expected to decline from 7.75% yoy in May 2022 to 7.49. %, according to analyst forecasts. As for the US, the minutes of the May meeting of the Federal Reserve (Fed) will be released.

USD/MXN Price Analysis: Technical Perspective

The USD/MXN pair has shifted to a neutral bias, as the Mexican Peso (MXN) has weakened for six consecutive days. Upside risks lie at the 50-day EMA at 18.0167, a few pips above the key psychological level of 18.0000; once overcome, the way would be opened for new gains. The first resistance level for USD/MXN would be the April 27 high at 18.1968, followed by the April 5 confluence and the 100 day EMA around the 18.3604-18.4010 zone. Conversely, if the USD/MXN breaks below 17.7994, where the 20-day EMA sits, it could retest the low of 17.4038.