- The Mexican Peso trades in a tight range on Tuesday as the currency recovers from the post-election sell-off.
- President-elect Claudia Sheinbaum seeks to calm markets with positive messages about the economy and the popularity of reforms.
- USD/MXN continues pulling back in the midst of a short and medium-term uptrend.
The Mexican Peso (MXN) appreciates on Tuesday amid positive risk appetite and after the post-election sell-off – which saw the currency lose on average 10% against its key counterparts – runs out of steam.
Market risk appetite remains solid after US stock indexes reached new all-time highs on Monday led by a rally in tech, and Asian investors carried the baton through into their session. The risk-on tone provides a constructive backdrop for the Peso, which tends to perform better when investors have more appetite for risk.
The Mexican Peso is supported by the release of higher Mexican GDP Aggregate Demand and Private Spending data for Q1.
Aggregate Demand showed a 1.5% rise QoQ and 2.6% YoY, which compared favorably to the 0.4% and 2.2% respectively, registered in the prior quarter, data from the INEGI showed on Tuesday.
Private Spending rose 1.5% QoQ and 3.6% YoY in Q1 which was above the 0.9% of the porevious quarter, but below the 5.1% YoY figure for Q4.
USD/MXN, meanwhile was pressured by lower-than-expected US Retail Sales data for May and a substantial downwards revision into negative territory of April's preliminary estimates.
At the time of writing, a single US Dollar (USD) buys 18.34 Mexican Pesos, EUR/MXN is trading at 19.69 and GBP/MXN at 23.29.
Mexican Peso bottoms out after heavy selling
The Mexican Peso continues its recovery on Tuesday as the bearish squeeze that saw the currency sell off dramatically following the June 2 elections, loses momentum.
Despite lingering concerns about a raft of constitutional reforms the new left-leaning coalition government wishes to make, which range from increasing the minimum wage to judicial reform, speculators appear to have eased off pushing the Peso lower.
Analysts at Capital Economics see USD/MXN as fair priced at 19.00, the June 12 high. The overweight long position that had built up in the Peso when it climbed to the 16.20s in May, has likely now been fully cremated.
Incoming President Claudia Sheinbaum sought to calm investors on Monday, saying “Mexico’s economy is healthy and strong, and [there is] nothing to worry about.”
She further cited independent polls commissioned over the weekend that indicated the controversial judicial reforms proposed by her party – which market commentators have held responsible for the Peso’s sell-off – are backed by the population at large.
Technical Analysis: USD/MXN still pulling back within an uptrend
USD/MXN is still in the midst of a pullback within an uptrend. It is possible the correction could have further to run, however, thereafter the dominant bull trend is likely to reassert itself. The next target higher is situated at 19.22 (March 2023 high).
USD/MXN Daily Chart
A break above Friday’s high at 18.68 would provide additional confirmation of more upside towards the target at 19.22.
The Relative Strength Index (RSI) has just exited the overbought zone, however, further suggesting a risk the correction could still go deeper. That said, the established uptrend is likely to resume eventually.
The short and medium term trends are now firmly bullish. The direction of the long-term trend, however, is in doubt after the break above the October 2023 high. Previous to that, it was bearish.
