USD/MXN Price Analysis: Rises to near 19.00, aligns with four-month highs

USD/MXN may depreciate as the momentum indicator 14-day RSI indicates a potential correction.
A four-month high of 18.99 acts as an immediate resistance level.
The pair could find support at the lower boundary of the ascending channel around the 18.70 level.

USD/MXN extends its gains for the second session, trading around 18.90 during the European hours on Friday. The analysis of the daily chart indicates the bullish bias as the pair is moving higher within an ascending channel.

However, the 14-day Relative Strength Index (RSI), a momentum indicator, is positioned at the 70 level, indicating that the USD/MXN pair is overbought. This suggests that a correction could be imminent.

On the upside, the USD/MXN pair tests a four-month high of 18.99 recorded on June 12. A breakthrough above this level could reinforce the bullish bias to test the upper boundary of the ascending channel near the level of 19.20.

In terms of support, the lower boundary of the ascending channel around the level of 18.70 could act as immediate support. Next support appears at the nine-day Exponential Moving Average (EMA) at 18.59. A break below this level could weaken the bullish sentiment and lead the USD/MXN pair to navigate the area around throwback support at the level of 17.60.

USD/MXN: Daily Chart

Mexican Peso FAQs

What key factors drive the Mexican Peso?

The Mexican Peso (MXN) is the most traded currency among its Latin American peers. Its value is broadly determined by the performance of the Mexican economy, the country’s central bank’s policy, the amount of foreign investment in the country and even the levels of remittances sent by Mexicans who live abroad, particularly in the United States. Geopolitical trends can also move MXN: for example, the process of nearshoring – or the decision by some firms to relocate manufacturing capacity and supply chains closer to their home countries – is also seen as a catalyst for the Mexican currency as the country is considered a key manufacturing hub in the American continent. Another catalyst for MXN is Oil prices as Mexico is a key exporter of the commodity.

How do decisions of the Banxico impact the Mexican Peso?

The main objective of Mexico’s central bank, also known as Banxico, is to maintain inflation at low and stable levels (at or close to its target of 3%, the midpoint in a tolerance band of between 2% and 4%). To this end, the bank sets an appropriate level of interest rates. When inflation is too high, Banxico will attempt to tame it by raising interest rates, making it more expensive for households and businesses to borrow money, thus cooling demand and the overall economy. Higher interest rates are generally positive for the Mexican Peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken MXN.

How does economic data influence the value of the Mexican Peso?

Macroeconomic data releases are key to assess the state of the economy and can have an impact on the Mexican Peso (MXN) valuation. A strong Mexican economy, based on high economic growth, low unemployment and high confidence is good for MXN. Not only does it attract more foreign investment but it may encourage the Bank of Mexico (Banxico) to increase interest rates, particularly if this strength comes together with elevated inflation. However, if economic data is weak, MXN is likely to depreciate.

How does broader risk sentiment impact the Mexican Peso?

As an emerging-market currency, the Mexican Peso (MXN) tends to strive during risk-on periods, or when investors perceive that broader market risks are low and thus are eager to engage with investments that carry a higher risk. Conversely, MXN tends to weaken at times of market turbulence or economic uncertainty as investors tend to sell higher-risk assets and flee to the more-stable safe havens.

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