Key Points
- Exchange Rate Surge: USD/MXN stands at 18.39, with a weekly gain of 8.30%.
- Technical Analysis: Key resistance at 18.48, 19.00, 19.23, and 20.00; support at 18.15.
- Political Impact: AMLO’s comments on judicial power caused the Peso to dip.
- Legislative Reforms: Proposed reforms could weaken institutions and affect the Peso.
- Economic Indicators: Mixed inflation trends and US economic factors influence the exchange rate.
The USD/MXN exchange rate has been on a roller coaster ride, showcasing significant fluctuations over recent weeks. The exchange rate is 18.39, marking a substantial daily gain of 2.30% and a weekly surge of 8.30%. The initial jump from 17.95 to 18.39 set the tone for a bullish trend, reflecting the volatility and dynamic nature of the currency market.
Key Resistance and Support Levels: Mapping the Terrain
Technical analysis reveals crucial resistance and support levels that traders are eyeing closely. The resistance levels at 18.48 (October 6 high), 19.00 (a psychological figure), 19.23 (March 20, 2023 high), and the notable 20.00 mark, representing a new 18-month high, serve as critical thresholds that could dictate the currency pair’s future direction. On the downside, the support level at 18.15 (April 19 high) offers a cushion against any potential declines, reinforcing the overall bullish sentiment in the market.
Political Waves: AMLO’s Influence on the Peso
The political landscape has significantly impacted the Mexican Peso, particularly due to recent comments by Mexican President Andres Manuel Lopez Obrador (AMLO). Last Friday, the Peso sank to an eight-month low against the US Dollar following AMLO’s remarks, which painted a grim picture of the judicial power. “The judicial power is hijacked, the service is taken over by a minority of those at the top,” AMLO stated, highlighting the influence of large corporations on ministers. Such statements have stirred concerns among investors, leading to heightened volatility in the currency market.
Legislative Proposals: Reforming the Framework
Adding to the political drama, Ignacio Mier, the leader of Morena in Congress, announced a series of proposals to be presented in September. These proposals include reforms of the Supreme Court, electoral changes, and the dissolution of INAI, the transparency body. Electing ministers and INE councillors by popular vote is poised to reshape Mexico’s institutional framework. According to Morgan Stanley, if Mexico’s upcoming government and Congress adopt this unorthodox agenda, it could undermine Mexican institutions, weakening the Peso to potentially 19.20.
Economic Indicators: Inflation and Employment Trends
Economic indicators further illustrate the complex backdrop against which the USD/MXN exchange rate moves. For instance, headline inflation in Mexico has risen for the third consecutive month. Conversely, underlying inflation has dropped for the sixteenth straight month. This paints a mixed picture of economic stability.
In May, Mexico’s CPI rose to 4.69% YoY, up slightly from April’s 4.65%. Meanwhile, the core CPI dipped from 4.37% to 4.21%. This indicates a nuanced inflationary trend.
US Economic Factors: Ripple Effects on the Peso
On the other side of the border, the US employment report has fueled speculation that the Federal Reserve will maintain higher interest rates for an extended period. The 10-year benchmark note yield rose to 4.414%, and the US Dollar Index climbed to 104.86, reflecting a 0.74% increase. These developments, alongside the unexpected rise in May nonfarm payrolls by 272,000, surpassing forecasts and the previous month’s figure, have implications for the Peso. The US unemployment rate also jumped from 3.9% to 4%, while average hourly earnings slightly increased to 4.1% YoY.
Auto Exports and Economic Stability: A Mixed Bag
In terms of trade, Mexican auto exports increased in May. However, the pace was slower compared to April. This indicates a potential cooling in one of the country’s key industries. Moreover, this trend, combined with broader economic indicators, underscores the complexities facing the Mexican economy.
In summary, the USD/MXN exchange rate is influenced by many factors. These include political statements, legislative reforms, economic indicators, and international dynamics. Understanding these elements is crucial for traders navigating this volatile landscape. With the current bullish trend and significant resistance levels ahead, the journey of the Peso against the Dollar promises to be an exciting ride.
