USD/MXN Takes a Breather as US Inflation Turns This Pair Bullish

The US dollar stopped sliding against the Mexican peso today after an 8-day fall lower. US inflation reported higher than expected, the main driver.

US inflation figures out today gave the markets a surprise printing a number higher than the forecast. Feelings were mixed after the report as Core inflation has still shown a decline, from 3.9% to 3.8%, although 3.7% was expected.

While overall inflation YoY was expected to be unchanged at 3.1% and printed a surprise at 3.2%. The USD/MXN had an immediate bullish reaction but didn’t break into a major correction of the downtrend.

The two numbers were mixed and haven’t really given the US dollar any renewed momentum for another bullish momentum to start. But it may benefits against some pairs where it’s currently in oversold territory such as the MXN or JPY

Sentiment was mixed after the initial reaction, but the uncertainty has been enough to stop the 8-day plunge in this FX pair. The day chart below shows how USD/MXN has stalled on a previous low from January this year at 16.78.

Given the support created by this level (red line) and RSI bouncing off the 30 level, I see a big chance of a correction from this point. The dollar is currently close to oversold territory, but the bullish peso trend didn’t manage to take the market below the 30 level.

This is often an indication of a weak trend, not that we’re about to see a change in trend. But that the bearish trend for this pair doesn’t have the momentum to keep going lower without a correction to catch its breath, let’s say.

To the downside I see a major support level around 16.70 (black line) if the red line gets broken. In the case of a correction, I would see the resistance level around the 17.00 big figure (blue line)

ABOUT THE AUTHOR See More

Gino Bruno D'Alessio

Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.

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