• The Mexican peso is recovering from earlier losses after improving risk appetite.
• The peso fell against the US dollar after mighty US macroeconomic data on Thursday, which strengthened the dollar.
• USD/MXN may enter a recent short-term uptrend after breaking the trendline.

The Mexican peso (MXN) is recovering after a frail start on Friday as a reversal in risk sentiment supports the peso, a risk-bearing currency.

The MXN has weakened against the US dollar recently, threatening to reverse the short-term peso trend after a string of positive US economic data further delayed the date on which the Federal Reserve (Fed) is expected to cut interest rates, supporting the dollar.

Mexico’s trade balance showed a larger-than-expected deficit of PLN 3.746 billion in April, according to INEGI data released on Friday. This was less than the surplus of EUR 2.098 billion last month and the deficit of EUR 0.8 billion forecast by economists.

Mexican Peso: Bank of Mexico publishes meeting minutes

Mexican data released on Thursday was mostly in line with estimates, but first-quarter Gross Domestic Product (GDP) showed a surprise upward revision to 0.3% quarter-on-quarter from the previous estimate of 0.2%. This temporarily strengthened Mexican peso pairs.

Publication of the May meeting of the Bank of Mexico (Banxico). Minutes showed that most decision-makers still see a risk of inflation growth, despite data indicating a further decline in core inflation. Sustained inflation in the services sector was considered a major obstacle to inflation falling to Banxico’s target of 3.0%.

The minutes show that the decision to maintain interest rates at 11.00% was unanimous.

In its final statement, Banxico’s Governing Board said: “Challenges and risks prevail, requiring continued prudent monetary policy management.”

It added: “Thanks to this decision, the monetary policy stance remains restrictive and will continue to support inflation convergence to the 3% target over the forecast horizon.”

Technical analysis: USD/MXN breaks the trend line and continues to rise

USD/MXN – the number of pesos that one US dollar can buy – is rising after breaking the downtrend line from April to May. This may indicate that the pair is currently in a short-term uptrend, favoring long positions over tiny positions.

USD/MXN 4-hour chart

A break above Thursday’s maximum at 16.76 would confirm the continuation of the teenage upward trend to a possible target at the current lows around 16.85.

However, given that the medium and long-term trends are bearish, there is a high risk of a reversal of the short-term trend and a continuation of the pair’s declines.

A decisive break below the gray trend line and an upward move around 16.68 would call into question the short-term uptrend and probably signal a return to further declines.