Mexican peso depreciates after rally

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  • The Mexican peso is trading lower after rising strongly on Wednesday.
  • This is likely a consolidation within an uptrend and more strengthening of the peso is likely.
  • Thursday’s US data were mixed and provided a balm to Wednesday’s negative releases, supporting USD/MXN.

The Mexican peso (MXN) was broadly unchanged on its key pairs on Friday, with USD/MXN holding steady as the US dollar (USD) stabilizes following a recent sell-off and market sentiment remains relatively placid ahead of the weekend.

At the time of writing, USD/MXN is at 16.70, EUR/MXN at 18.14 and GBP/MXN at 21.15.


Mexican peso stable after midweek fluctuations

The Mexican peso holds the line on its major pairs as a lack of market-moving data and geopolitical shocks keep volatility to a minimum.

On Thursday, the United States released a mixed set of data that didn’t really change the outlook for the economy or interest rates, key factors influencing currencies. The same was true for Europe and the UK.

As for the US data, the results were as follows:

  • Jobless claims for the week ending May 10 were 222,000, above the expected 220,000 but below the upwardly revised 232,000. from last week.
  • The number of building permits issued – considered a leading indicator for the economy – fell to 1.44 million in April, below the 1.48 million expected and 1.47 million previously expected.
  • Housing starts rose to 1.36 million in April from 1.29 million previously, but not as much as economists expected of 1.42 million.
  • The Philadelphia Fed Manufacturing Survey was 4.5 in May, below the forecast of 8 and 15.5 earlier.
  • Industrial production in the US remained unchanged in May and amounted to 0.0%, while analysts expected an enhance of 0.1%, the same as in the previous month.

In addition to the data, several U.S. Federal Reserve (Fed) officials commented on the Fed’s monetary policy, but their words were interpreted as neutral and had little impact.

Richmond Fed President Thomas Barkin said inflation is falling but it will “take longer to reach the Fed’s target.”

Meanwhile, Cleveland Fed President Loretta Mester welcomed the latest CPI data but said monetary policy was well prepared.

Atlanta Fed President Raphael Bostic said he was pleased with April’s progress on inflation, but the Fed must “be patient and vigilant.”

Meanwhile, in Europe, European Central Bank (ECB) board member Isabel Schnabel said a June interest rate cut may be appropriate, but “the path beyond June is much more uncertain.”

So, to sum up, there are no major changes and everything is as usual.

Technical analysis: USD/MXN threatens to fall

USD/MXN – the value of one US dollar in Mexican pesos – is trending sideways after a massive sell-off on Wednesday.

Consolidation after a acute decline could likely represent the beginning of a continuation Bear Flag formation, although it is still too early to say for sure.

USD/MXN 4-hour chart

Since breaking below the bottom of the range at 16.86 on May 9, the pair appears to be in a short-term downtrend, favoring miniature positions over long positions.

If USD/MXN breaks below the May 15 lows of 16.64, it will likely confirm the beginning of another bearish phase.

A larger decline would likely reach the conservative target of breaking the mid-April to May range at 16.54, which is a Fibonacci ratio of 0.618 for a high extrapolated lower than the range. A further bearish trend may reach as high as 16.34, i.e. the full height of the range extrapolated lower.

Given that the medium and long-term trends are bearish, the chances of further declines will be even greater.

To reverse the downward trend, a rebound and a decisive break back into the range (above 16.86) would be necessary.

A definite breakout would be one accompanied by a longer than average green candle that closed near its high or three green candlesticks in a row.

Economic indicator

Initial unemployment applications

Initial unemployment benefits claims published by US Department of Labor is a measure of the number of people filing for state unemployment insurance for the first time. The larger-than-expected number indicates weakness in the U.S. labor market, weighs negatively on the U.S. economy and is negative for the U.S. dollar (USD). On the other hand, a decreasing number should be considered an increasing one for the USD.

Read more.

Last release: Thu 16 May 2024 12:30

Frequency: Every week

Actual: 222 thousand

Agreement: 220 thousand

Previous: 231 thousand

Source: US Department of Labor


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