#USDMXN @ 17.5707 The Mexican Peso rallied for the second straight trading session on the back of increased risk appetite amongst investors. (Pivot Orderbook analysis)

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• The Mexican Peso rallied for the second straight trading session on the back of increased risk appetite amongst investors.
• The agreement reached over the weekend to raise the US debt ceiling stokes investor optimism, as reflected in rising equity futures.
• The US Dollar Index (DXY) remains static amidst rising US bond yields due to strong US data and a hawkish Fed, unable to prevent USD/MXN’s decline as Mexico’s ongoing GDP growth uplifts the Peso.
• ING analysts indicate that the Peso’s trajectory hinges on the Fed’s response to a possible recession, significantly if the US economy slows down amidst inflation worries.

The pair currently trades last at 17.5707.

The previous day high was 17.8635 while the previous day low was 17.6165. The daily 38.2% Fib levels comes at 17.7108, expected to provide resistance. Similarly, the daily 61.8% fib level is at 17.7691, expected to provide resistance.

USD/MXN dropped sharply as investors’ optimism spurred an appetite for riskier assets, meaning emerging market currencies appreciated against the US Dollar (USD). The Mexican Peso (MXN) rallied for the second straight trading session, with the USD/MXN down 0.36%. At the time of writing, the USD/MXN exchanges hands at 17.5550 after hitting a daily high of 17.6236.

During the weekend, talks between Republicans and Democrats delivered an agreement to raise the US debt ceiling, cheered by investors, as shown by equity futures rising. US President Joe Biden and House Speaker Kevin McCarthy remain confident that their agreement will pass Congress. Meanwhile, the latest tranche of economic data from the United States (US), puts the US Federal Reserve (Fed) on center stage, with odds for a 25 bps hike in June increasing from 25.7% to 58.4% on Monday.

US data improved, as shown by Retail Sales, Industrial Production, GDP, and Consumer Spending. In addition, the Fed’s preferred gauge for inflation, the Core PCE, stood at around the high of 4%. Consequently, the aggressive repricing on a hawkish Fed was witnessed by US bond yields, climbing sharply and underpinning the US Dollar.

The US Dollar Index (DXY) is almost unchanged at 104.240, though it failed to cap the USD/MXN fall. The Mexican Peso strengthened since last Friday as data from Mexico showed the country grew for the sixth consecutive quarter, with the Gross Domestic Product (GDP) increasing by 1% in the period.

“It all depends on whether inflation allows the Fed to respond to a recession. If the US does slow down quite aggressively and the Fed still has a problem with inflation and dollar rates stay high, then probably the Peso could start to suffer,” wrote analysts of ING.

During the weekend, the Chicago Fed President Austan Goolsbee said the Fed is improving on its inflation goal but has not succeeded, adding that interest rate increases take months or years to be felt by the economy. He said that the Fed can get inflation down without a recession.

USD/MXN remains downward biased after sliding below the 20-day Exponential Moving Average (EMA) at 17.7662, exacerbating a fall toward the psychological 17.5000 barrier. Drop below the latter could put the year-to-date (YTD) low of 17.4238 in play before testing 17.0000. Conversely, USD/MXN buyers must reclaim the 20-day EMA, so they can threaten to lift the pair toward the 50-day EMA at 17.9706.

Technical Levels: Supports and Resistances

USDMXN currently trading at 17.5634 at the time of writing. Pair opened at 17.6255 and is trading with a change of -0.35 % .

The pair remains strongly bearish on the daily time frame. It trades below the 20 SMA @ 17.7505, 50 SMA 18.0109, 100 SMA @ 18.3223 and 200 SMA @ 19.045.

The previous day high was 17.8635 while the previous day low was 17.6165. The daily 38.2% Fib levels comes at 17.7108, expected to provide resistance. Similarly, the daily 61.8% fib level is at 17.7691, expected to provide resistance.

Note the levels of interest below:

• Pivot support is noted at 17.5402, 17.4548, 17.2932
• Pivot resistance is noted at 17.7872, 17.9488, 18.0341

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