USD/MXN hovers below 18.90 post US jobless claims, ahead of Banxico’s decision

• USD/MXN seesaws at around 18.8900 ahead of Banxico’s decision.
• US Initial Jobless Claims exceeded estimates, signaling that the US labor market could begin to deteriorate.
• USD/MXN Price Analysis: Range-bound, but it could test the 19.0000 figure.

The Mexican Peso (MXM) continues to strengthen against the US Dollar (USD) in the North American session due to a softer greenback, and traders are awaiting Banxico’s monetary policy decision, with the Mexican central bank estimated to raise rates by 25 bps. Therefore, the USD/MXN meanders at around 18.8660s, below its opening price, after hitting a daily high of 18.9537.

Banxico's 25 bps rate hike, could undermine the Mexican peso

Wall Street is set to open in the green, while the United States (US) labor market appears to ease on a Bureau of Labor Statistics (BLS) report. Initial Jobless Claims for the week ending on February 4 rose by 196,000, more than the 190,000 expected by market analysts. Even though it’s a small step toward easier labor market conditions, last Friday’s astonishing US Nonfarm Payrolls report might deter the US Federal Reserve (Fed) from pausing. Instead, they would need to keep hiking rates.

Aside from this, the Mexican economic calendar revealed that inflation rose by 7.91% YoY in January, according to the national statistics agency, higher than 7.89% expectations. Meanwhile, core inflation, which excludes volatile items, increased by 0.71% MoM, above estimates of 0.69%, keeping Banxico’s, the Mexican central bank, pressured as they prepare to deliver its monetary policy decision at around 19:00 GMT.

Delving into Banxico’s decision, most analysts estimate a 25 bps hike, lifting rates at around 10.75%, aligned with the US Federal Reserve’s (Fed) policy. Nevertheless, money market futures had priced in 50 bps of increases for 2023.

Analysts at TD Securities commented that this could be the last increase by Banxico though recent inflation data, which could suggest further aggression is warranted. They added, “we expect that Banxico will test its credibility by calling for a halt in its hiking cycle. We think the decision will be backed by the expected effects of tight monetary conditions, which may be about to appear on prices, and its conviction that such conditions will be consistent with inflation traveling back towards target in the following quarters. In spite of the latter, we expect Banxico to maintain a margin for maneuvering and avoid signaling a sharp and definitive end to the tightening effort.”

USD/MXN technical analysis

From a daily chart perspective, the USD/MXN remains downward biased, exchanging hands below long-term daily Moving Averages (MAs). Nevertheless, the break above a falling wedge suggests that buyers are gathering momentum. Also, the top-trend line of the former is capping the USD/MXN fall to test the YTD lows of around $18.50.

Upwards, the USD/MXN’s next resistance would be the psychological 19.000 figure. The break above will expose the 50-day Exponential Moving Average (EMA) at 19.1208, followed by the February 6 daily and weekly high of 19.2905, ahead of the YTD high at 19.5345.

As an alternate scenario, a fall toward the YTD low of 18.5071 is likely to happen, followed by August 7, 2018, low at 18.4047, and April 17, 2018, low at 17.9388.