USD/MXN Peso Drops Below 13 Before GDP and Inflation Releases

* Last month inflation dropped below CB target.
* Current inflation is 3.89%. The Banxico has a 2 – 4 % inflation target.
* Mexican Central Bank has signalled it will hold rates expects inflation to drop to 3% in 2015.
* Economic recovery is subject to macro factors, but inflation MXN positive.
* The USD/MXN has been trading in a tight range since the first week of February.

The Mexican peso started the year dropping versus the US dollar given the Fed’s tapering had started and triggered outflows from emerging markets. The Mexican government continued to push forward economic reforms and in February scored two of the biggest victories. The optimism helped the MXN start an appreciation trend that has continued at a slow pace from 13.30 to today’s trading below 13.00 a peso away from the 52 week low.

The USD/MXN has been trading in a tight range since the first week of February. The Mexican stock market has decoupled from the US market and was able to gain last week. The MXN has hit 11 week highs after US manufacturing seems to have turned the corner. The positive correlation between positive US/Mexico fundamental indicators and the direction of the Peso is back in play.

Tomorrow the Central Bank will auction $1.5 billion of a 20 year bond. The coupon will be 7.75 percent. Which if successful will boost the MXN versus the USD.

USD/MXN Technical

S3 S2 S1 R1 R2 R3
12.9316 12.9398 12.9476 12.9636 12.9718 12.9796

MXN Economic Calendar
Tuesday – MX Gross Domestic Product (YoY) (Jan) Previous 0.7%
Wednesday – MX 12-Month Inflation (Mar) Previous 4.23%
Friday – IMF Meeting All day

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza