USD/MXN remains above 19.00, holding at highest since April
- Mexican peso remains pressure by NAFTA fears.
- Rally in crude oil prices helped limit the upside.
- Signals of a slowdown in the Mexican economy.
The USD/MXN pair has been moving in a range since last week, trading on average around 19.15. The last time it did so was back in March. Fears about how NAFTA negotiations could end and a stronger US dollar continue to support the rally in the pair.
The Mexican peso tends to have a positive correlation with crude oil. The WTI barrel has risen sharply during the last few days and could have limited the upside in USD/MXN. The pair peaked at 19.32 last week and then pulled back modestly.
Technical outlook
The short-term trend continues to point to the upside. At the moment the pair is challenging a strong resistance around 19.30. A consolidation above would clear the way to more gains with a potential target at 19.45/50.
To the downside, the immediate support is seen around 19.13 followed by the 19.00 barrier. A decline below would remove bullish pressure, signaling a potential bearish correction ahead.
Mexico: GDP contracted during Q2
Data released today in Mexico showed that the economy contracted 0.2% during the third quarter. It was the first contraction since 2013. The annual growth rate fell from 1.8% to 1.6%. Despite today’s data, policy makers in Mexico see a rebound and an acceleration in activity going forward. Risks to the positive outlook include NAFTA negotiations, Mexican presidential elections (July 2018) and the exchange rate.
“After the election results in the United States we thought the Mexican economy would suffer a negative shock. We were wrong. However, it is clear that while there was no shock to economic activity, the economy started a slowdown process that has finally triggered the first decline in GDP in four years. We expect this process to continue as news from the NAFTA negotiations continue, and the country prepares for the presidential elections next year”, said analysts from Wells Fargo.