The Mexican Peso (MXN) began the week on a weaker note, falling around 0.58% against the US Dollar (USD) as investors brace for key events, including the Federal Reserve’s (Fed) monetary policy meeting on May 7 and the release of Mexico’s inflation figures. At the time of writing, the USD/MXN trades at 19.67.
Market sentiment remains focused on US trade news, with the US signaling potential deals with India, South Korea, and Japan. Although US President Donald Trump stated that China “wants a deal very badly,” the absence of confirmation from Beijing about the start of discussions keeps traders on edge.
Mexico’s economic calendar was light on Monday, with attention now turning to the release of April’s Consumer Price Index (CPI) on May 8. March inflation was recorded at 3.8% YoY, and Core CPI stood at 3.64%. While inflation remains within the Banco de Mexico’s (Banxico) target range of 3% ± 1%, any acceleration could pressure Banxico, which is in the midst of an easing cycle.
In other news, Mexican President Claudia Sheinbaum and US President Trump discussed the potential for a US military incursion into Mexico to combat drug cartels. Sheinbaum rejected the offer, stating, “We can work together, but you in your territory and us in ours.”
Meanwhile, data from the Institute for Supply Management (ISM) showed an improvement in US services activity in April, with a sub-component revealing a jump in Prices Paid, suggesting inflationary pressures are rising.
USD/MXN Outlook: Peso Faces Pressure Ahead of Fed and Inflation Data
The USD/MXN pair remains sensitive to shifts in sentiment, particularly with the upcoming Federal Reserve decision. Expectations are that the Fed will keep interest rates steady, but traders will be watching for any changes in tone from Fed Chair Jerome Powell at the post-meeting press conference.
The interest rate differential between the US and Mexico is likely to influence the direction of the USD/MXN. If the Fed maintains a hawkish stance, it could weaken the Peso, potentially pushing the exchange rate towards the key 200-day Simple Moving Average (SMA) at 19.98.
Technical Analysis: USD/MXN Struggles Below Key SMA Levels
The downtrend in USD/MXN remains intact, but the pair has found support around the 19.46-19.50 range, where sellers have struggled to drive prices lower. A rising Relative Strength Index (RSI) suggests that buyers may be gathering momentum, setting up a potential test of the 200-day SMA at 19.98. A breach of this level would expose the psychological 20.00 mark, followed by the 100-day SMA at 20.26.
On the downside, if USD/MXN falls below the 19.46 level, further declines toward the 19.00 mark are possible, with the next support located at 18.59, the high from June 28 that turned into support.
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