- After hitting the highest level since March 2020, the Mexican peso reversed sharply.
- The dollar recovers ground this Tuesday before the end of the Wall Street rally.
- Volatile USD/MXN, without clear signals.
With a gain of 0.82%, the USD/MXN He’s having the best day in three weeks. On Monday it bottomed at 19.41, the lowest level since March 2020; since then it rebounded 1.50%. The sharp pullback increases the risks of further volatility and future gains.
Have you made ground?
USD/MXN ended Monday with a small loss and far from the bottom, and above 19.50; all signs of exhaustion to the downside. On Tuesday, the pair continued to bounce and accelerated during the American session reaching 19.73, the highest since Friday.
The pullback, if it holds, could spell the end of the Mexican peso’s recent rally unless USD/MXN falls back below 19.50. The pair will most likely enter a short-term consolidation phase, trading in the 19.50/19.75 range again. A break to the upside would draw attention to 19.90.
Volatility has increased over the past few sessions as USD/MXN broke through key support levels. This price action could persist, also fueled by the significant fluctuations on Wall Street.
From a fundamental perspective, analysts at Standard Chartered Global Research believe that an aggressive Bank of Mexico should support the Mexican peso in the short term. “Given the high short-term inflation figures and the strong conviction among most board members to accelerate the rate of hikes, we now expect Banxico to raise the policy rate by 75 bps to 7.75% at its meeting. June (previously we expected a 25 bps move to 7.25%); this would take the ante real rate close to the upper level of the estimated neutral real rate range (1.8-3.4%).”
Technical levels
Source: Fx Street
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