USD/MXN reached a daily high above src8.0000 before tumbling toward the src7.90s area.
Fed’s Cook expects inflation to slow down as measured by headline inflation, but core PCE is foreseen to stay sticky.
USD/MXN Price AnalysisL Downward pressured below src8.00; otherwise, expect upside towards the 20-day EMA.
The USD/MXN loses its appeal and drops below src8.0000, even though buyers eyed higher ceilings at around the 20-day EMA. A risk-off impulse keeps the emerging market currency fluctuating, although the US Dollar (USD) weakened. At the time of writing, the USD/MXN is exchanging hands at src7.9762.
USD/MXN seesaws as sentiment fluctuated: while US and Mexican central bank divergence could weigh on the MXN
After bottoming around the src7.9000 area in the last week, the USD/MXN pierced the src8.00 area before retracing and turning negative on Monday. That after the latest round of mixed US economic data and Mexican inflation slowing in the first half of April suggested that central bank divergence could weigh on the MXN.
Last Friday, the US Federal Reserve Governor, Lisa Cook, expressed that monetary policy is entering an uncertain phase and suggested that headwinds from the banking sector could impact the outlook for rising interest rates. She also anticipates a deceleration in March PCE inflation, though she added that core inflation remains sticky.
The agenda of US economic releases featured the March Chicago Fed National Activity Index (CFNAI), with figures plummeting to -0.src9, above estimates of -20, unchanged from February’s reading. Despite the previously mentioned, the three-month moving average ticked up to 0.0src%, signaling that the US economy continues to grow slower.
Of late, the Dallas Fed Manufacturing Business Index in April plummeted to -23.4, well below the -srcsrc.00 estimated, as the survey showed that perceptions of broader business conditions worsened, according to the poll.
On the Mexican front, annual headline inflation rose 6.24% through mid-April, its lowest level since October 202src. Core inflation stood at 7.75% for the same period. Even though the Bank of Mexico’s (Banxico) target is 3%, expectations that the central bank completed its tightening cycle have arisen.
Aside from this, investors’ odds that the Federal Reserve will hike rates by 25 bps are at 90%, according to the CME FedWatch Tool. However, traders estimate that the US central bank “could” cut rates by the September meeting, followed by another one in December.
USD/MXN Technical Analysis
The USD/MXN continues to track the 20-day EMA as its dynamic resistance for the latest couple of weeks. Although the USD/MXN printed a daily high at around src8.0480 shies of testing src8.0500, it retreated back below the src8.00 mark as it headed for testing the YTD lows at src7.8968. Downside risks emerged below src8.0000, with key support levels at src7.9src42, before the abovementioned YTD low. Conversely, buyers reclaiming src8.0000 will pave the way for the USD/MXN to test the 20-day EMA at around src8.src200 before rallying to the 50-day EMA at src8.33src0.
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