USD/MXN: Banxico Releases Policy Metting Minutes, Many Members Bullish on the Mexican Economy

The Mexican peso got a small boost from the monetary policy minutes published today. The minutes show that most members were on the same page regarding decreasing inflation and a stronger economy.

The report shows that the majority of members expected a stronger economy in Q1, mostly due to a “reactivation” of the construction sector.

“Most members mentioned that economic activity is expected to show greater dynamism during the first quarter of 2024 relative to the weakness of the previous quarter.”

Members were also aligned in their analysis of inflation, stating that core inflation had declined significantly. They also recognized that inflation overall had declined faster than expected by the central bank’s forecasts.

Members also mentioned they believed that internal consumption would make up for any decline in external consumption if the US economy were to contract. Today’s Consumer Confidence numbers showed a steady rate at 47.3 up by 0.1 over the previous month.

Tomorrow is Non-farm Payrolls day, and we might get a surprise in the numbers released. We often do, so, it wouldn’t come as a surprise. However, the US dollar has been in a bear market across the board.

The DXY index has fallen lower for 3 trading sessions in a row, as the market sensed a more dovish stance from the Federal Reserve. That view can change short-term, only if we get a much higher than expected number of 200k new jobs tomorrow.

Technical View

The day chart for USD/MXN shows a bearish environment for this FX pair, which goes back to November 2023. We can see that the previous 6 candles created a triangle pattern (yellow area). If you only take the bodies of the candles, you can see it resembles more a triangle (blue area).

In either case, the two patterns are both consolidation zones. The market tends to take a pause while creating these patterns, to then continue in the direction of the main trend. However, these formations can at times give way to a reversal in the trend although they occur less often.

The current market has broken out of the triangle and rectangle and looks trapped between the bottom of the triangle/rectangle and the support area (blue line) which set by the previous low in March.

A break below the support area would see the next support level (red line) relatively close at 16.37, and its major support area. The 16.37 level coincides with a previous low from October 2015. From that low the market rallied to its all-time high at 25.77 over the following 5 years.