USD/MXN up 2.13% on the day at 21.96; Border Adjusted 101

Currently, USD/MXN is trading at 21.96, up +1.91% on the day, having posted a daily high at 21.97 and low at 21.49.

Business as usual for the US dollar as data readings were acceptable and nothing in its horizon has changed. Not the Fed rate hike expectations, Not a new Trade Agenda, Not the fact that President-elect targets brighter days for the United States of America. Then, the Mexican peso fought an intense battle without much to offer to crack the support zone 21.50/45.

CPI 20/20 view

Wells Fargo Research Team notes that consumer price inflation rose 0.3 percent in December on the increase in gasoline prices but also a solid 0.2 percent rise in core inflation. Inflation pressures are building, but not fast enough to alarm the Fed.

The report continues, "Food prices were unchanged for a sixth straight month, but the flat headline continues to mask the divergent trends in prices for food bought for at-home consumption and eating out. Prices for food at home are down 2.0 percent over the past year amid declines across all major grocery categories, most notably a 5.4 percent drop in prices for meats, poultry & eggs. Prices for food away from home, on the other hand, continue to rise, but the pace has moderated in recent months."

Border Adjusted 101

Marc A. Thiessen, writer at The Washington Post, notes that supporters see it as a way for Trump to follow through on his campaign pledge to tax imports and support exports without resorting to tariffs that would provoke a massive global trade fight. Right now, more than 160 countries around the world have a “border adjusted” value-added tax (VAT). So unlike tariffs, a border adjustment should be able to pass muster with the World Trade Organization.

He further writes, "Here is where the wall comes in: As economist Martin Feldstein explains, the border adjustment would raise hundreds of billions in tax revenue — not from U.S. consumers or corporations, but from our foreign trading partners. Under the border adjustment, the United States would refund the tax on exports and charge it on imports — so the net revenue would be negative if we had a trade surplus, and positive if we had a trade deficit. Because the United States has a trade deficit, Feldstein calculates the border adjustment would bring in about $120 billion a year, or $1 trillion over a decade."

December CPI Rises on Gasoline and Broad Gains in the Core

USD/MXN Levels to consider

In terms of technical levels, the significant upside barrier to break is aligned at 22.03 (Jan. high). While supports are aligned at 21.75, later 21.62 and finally 21.50.

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