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Mexican Peso Gains on Banxico Rate Hold, Sending USD/MXN Towards Key Support

Mexican Peso Gains on Banxico Rate Hold, Sending USD/MXN Towards Key Support

Thomas Westwater, Analyst

Bank of Mexico, USD/MXN, Suez Canal, Wall Street - Talking Points

  • Wall Street ticks higher after a better-than-expected jobless claims figure stoked sentiment
  • Asia-Pacific stocks set to drift modestly higher following Wall Street’s performance to end week
  • USD/MXN drifts lower toward trendline support following Bank of Mexico rate decision
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Wall Street moved mostly higher on Thursday, led by small-cap equities as investor sentiment picked up following a better-than-expected US labor market report. According to the DailyFX Economic Calendar, US initial jobless claims for the week ending March 20 ticked down to 684k from 781k in the week prior. Moreover, the final GDP read for the United came in above estimates, with the figure rising to 4.3% versus 4.1% expected.

The Russell 2000 index gained into the close, adding 2.29% on the day following sharp losses earlier this week. The Dow Jones Industrial Average (DJIA) and S&P 500 index also moved higher, adding 0.62% and 0.52%, respectively. Technology stocks were less inspired, reflected by the Nasdaq 100 index’s 0.14% loss. The bond market saw modest selling in longer-dated Treasuries, with the 10-year yield ticking 1.65% higher.

Meanwhile, the effects from the Suez Canal blockage continued to ripple through energy markets and supply chain routes. Shipping experts estimate that the canal’s blockage is withholding 2 million barrels per day in crude oil supply. Oil moved lower on Thursday, however, giving back a large portion of Wednesday’s gains. The blockage is expected to last for a few more days, according to industry experts per the Wall Street Journal.

Elsewhere, the Bank of Mexico held its benchmark interest rate steady at 4.00%. While the consensus among analysts was in line with the Mexican central bank’s decision, some were calling for a rate cut, despite rising prices which helps explain the Peso’s strength following the decision. USD/MXN clawed back a large chunk of this week’s gains even as the US Dollar strengthened against most of its other major currency peers.

Russell 2000, Crude Oil, 10-year Treasury – 30 Minute Chart

us 10 year vs crude oil

Chart created with TradingView

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Friday’s Asia-Pacific Outlook

Asia-Pacific stocks appear set for a small bounce at the open following the modestly upbeat sentiment seen on Wall Street. Hong Kong’s benchmark Hang Seng Index (HSI) entered a technical correction on Thursday after extending 10% lower from its February peak, although prices recovered intraday losses into the close.

Mainland China’s CSI 300 index was nearly unchanged on Thursday. Outside of China, the KOSPI, South Korea’s benchmark index, gained 0.40%. Australia’s ASX 200 also moved higher, with a 0.17% gain. The biggest gainer across the Asia-Pacific region, however, was a 1.14% rise in Japan’s Nikkei 225 index. The Topix index helped pull the Japanese benchmark higher, with a 1.40% run.

Friday’s economic calendar doesn’t present any events that will likely move markets to end the week. Thailand will release unemployment data while industrial production data will cross the wires for Singapore. India will report bank loan growth and foreign exchange reserves to finish the trading week. Traders will be keeping an eye on the Suez canal situation.

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USD/MXN Technical Outlook

Peso strength pushed USD/MXN lower following the Bank of Mexico decision, but the 23.6% Fibonacci retracement fended off an extended decline near the 20.6 handle. The broader trend from the January swing low remains oriented higher. Prices may test trendline support in the near-term, given the less dovish outlook in Mexico’s monetary policy outlook.

If trendline support breaks, the 50-day Simple Moving Average (SMA) may serve as a potential area of support. The 23.6% Fib may step back into the fold to provide support prior to that, however. Consolidation would likely lead to prices drifting slightly higher as the lateral distance to the trendline closes. Auxiliary factors such as risk-induced USD strength and oil prices will be key to watch for the overall direction.

USD/MXN Daily Chart

usdmxn  chart

Chart created with TradingView

Mexican Peso TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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