The Mexican Peso (MXN) continued its upward trajectory on Tuesday, trading at levels not seen in almost nine years against the US Dollar (USD), as it maintains its long-term bullish trend.
Investors are eagerly awaiting the release of Mexican inflation data for March, scheduled for 12:00 GMT, which is expected to play a significant role in shaping the country’s interest rate outlook, a key determinant of foreign exchange valuations.
Anticipation Surrounding Mexican Inflation Data
The forthcoming Mexican inflation data for March holds considerable sway over the Mexican Peso’s performance, with any deviations from analysts’ projections likely to influence market sentiment.
Analysts anticipate a 0.36% month-on-month increase in Mexican headline inflation for March, following a 0.09% rise in February. Similarly, core inflation is forecasted to rise by 0.51% after a 0.49% uptick in February.
Impact on the Mexican Peso
A higher-than-expected inflation reading is poised to bolster the Mexican Peso, signaling the need for the Banco de Mexico (Banxico) to maintain higher interest rates for an extended period. Elevated interest rates typically attract greater foreign capital inflows, thus boosting demand for the currency.
Banxico’s Recent Policy Stance
In its March meeting, Banxico lowered interest rates from 11.25% to 11.00%, citing a gradual decline in inflation. However, the meeting minutes underscored the data-dependent nature of future policy decisions, with inflationary pressures remaining a concern.
Technical Analysis of USD/MXN Pair
The USD/MXN pair has accelerated its downward trajectory, marking a notable shift since its peak at 25.76 in April 2020, now trading in the 16.20s range. Technical analysis suggests the potential formation of a large three-wave Measured Move pattern, with wave C nearing parity with wave A at 15.89.
Moreover, the pair has surpassed the conservative target of the 0.618 Fibonacci extension of wave A, indicating a possible reversal or significant correction in the near term.
Potential Reversal Signals
Despite the ongoing downtrend, the Relative Strength Index (RSI) is exhibiting convergence with price movements, suggesting a potential loss of downside momentum. This divergence, coupled with USD/MXN’s breach of 2023 lows without corresponding RSI declines, offers a bullish indication that may pave the way for an eventual correction higher, albeit awaiting confirmation from price action.
Conclusion
As the Mexican Peso continues to ascend to nearly nine-year highs against the US Dollar, all eyes are on the upcoming inflation data release, which holds the key to shaping market dynamics and investor sentiment in the near term.
