USD/MXN trades below the 20-DMA awaiting the Fed’s monetary policy decision

• The USD/MXN pair fell 0.37% and is trading at 17.0685, while the Mexican Peso recovers part of its losses.
• Investors are cautious ahead of the Federal Reserve meeting, where an update to economic forecasts is expected.
• Preliminary data from INEGI suggest that the Mexican economy grew 3.4% year-on-year in August.

He Mexican peso (MXN) erases some of Monday’s losses against the Dollar (USD) and recovers the 20-day moving average (DMA) despite the strength of the Dollar, as traders prepare for the US Federal Reserve’s decision to tomorrow. At the time of writing, the USD/MXN pair is trading at 17.0685, down 0.37%.

USD/MXN trades lower despite the strength of the Dollar, as investors await the update of the Federal Reserve’s economic projections

Investor sentiment has turned negative ahead of the Fed meeting. During the latest economic projections, the Fed anticipated economic growth of 1%, unemployment rate of 4.1%, PCE inflation of 3.2%, inflation Core PCE of 3.9% and a federal funds rate (FFR) that would peak at 5.60%. These projections will be updated and will play a crucial role in shaping the Fed’s future policy decisions.

Meanwhile, housing data was released, which was worse than expected. Housing construction plunged 11.3% last month, the lowest since June 2020. July data was revised downward to show starts accelerating to a rate of 1.447 million units instead from the 1,452 million units previously reported. Meanwhile, building permits soared 6.9%, up from the previous month’s 0.1% expansion, the most significant rise in six months.

Meanwhile, US Treasury yields are trading in positive territory, with the 10-year yield trading at 4.337% amid an auction of US 20-year bonds, while the Dollar , as the US Dollar Index (DXY) shows, remains firm around 105.12.

On the other side of the border, the Mexican economic agenda revealed a survey by the National Institute of Statistics, Geography and Informatics (INEGI), which shows that the economy probably grew 3.4% in August compared to the same month of the previous year, in a preliminary estimate from the statistics agency.

USD/MXN Price Analysis: Technical Outlook

At the start of the week, USD/MXN failed to break above the 100-DMA at 17.2091, opening the door for a pullback, which led the pair to break the 20-DMA at 17.1075. That said, and with price action below most moving averages, the exotic pair could retest the psychological figure of 17.00. However, it must challenge the 50-DMA at 17.0101 before declining towards that level or below. For a bullish resumption, USD/MXN must reclaim the 100 DMA, followed by 17.5000.