- Last week, the Mexican peso fell more than 8.0% in its key pairs amid election volatility.
- The peso is further depreciating after a speech by outgoing President Obrador, in which he stated that radical reforms are needed to cure endemic corruption.
- The USD/MXN pair continues to rise and is currently trading well above 18.00.
The Mexican peso (MXN) sees a marginal rebound on Monday after losing more than 8.0% in the previous week in the most traded pair. The slight rebound is likely due to bears hiding their shorts and taking profits after the significant move in the previous week.
All votes in Mexico’s elections have been counted and show that Morena’s party won a majority in Congress, as expected, but is two seats brief of one in the Senate. According to Reuters, Morena and her allies won 372 of 500 seats in Congress and 83 of 128 seats in the Senate.
The result will still enable President-elect Claudia Sheinbaum’s administration to push through a controversial package of reforms that are shaking up markets and leading to a depreciation of the peso. However, they will have to win over some opposition senators for the reforms to pass both houses.
At the time of writing, USD/MXN was trading at 18.34, EUR/MXN was trading at 19.75 and GBP/MXN was trading at 23.34.
Mexican peso weakens after AMLO tirade
The post-election sell-off in the Mexican peso gained recent momentum on Friday following comments from outgoing President Andres Manuel Lopez Obrador (AMLO) during his daily morning news conference.
It was necessary to push through judicial reforms and disband autonomous bodies such as INAI – the government’s transparency agency – because, in AMLO’s words, “the judiciary is being hijacked and served by a minority of those at the top. I’ve already said it here and they know it very well. It’s downright shameful, but there are ministers who are like employees of large corporations,” says El Financiero.
Inflation data, also at the end of last week, were mixed and showed an raise in headline inflation in May to 4.69% y/y from 4.65% in April, but a decline in core inflation to 4.21% y/y from 4.37% .
Technical Analysis: USD/MXN Is Going Higher
USD/MXN – the value of one US dollar in Mexican pesos – breaks the 18.00 mark and peaks at 18.46, close to October 2023’s 18.49.
USD/MXN daily chart
A higher extension suggests that the brief and medium term trends are bullish, and given that “the trend is your friend”, the price is likely to continue to rise.
The pair is now near a key resistance level at 18.49, the October 2023 high. A break above this level will likely send it higher, with the next target potentially at 19.22 (March 2023 high). ).
The long-term trend is likely still bearish, suggesting that moderate fundamental risk persists.
