- USD/MXN bounces off weekly lows to gain 0.56% ahead of expected Fed rate decision.
- Despite a surge in US consumer confidence, looming recession fears and a worsening Richmond Fed Manufacturing Index add to the uncertainty.
- Mexico’s stalled economic activity in May overshadows the IMF’s recently improved growth forecast for 2023.
USD/MXN suffered losses after bouncing off weekly lows of 16.7992 on risk-on momentum. At the same time, traders are preparing for Wednesday’s decision by the US Federal Reserve (Fed), which is expected to deliver another rate hike amid speculation that its work is almost done. USD/MXN is trading at 16.9188, up 0.56%.
A strong US dollar due to the Fed’s impending monetary policy decision is supporting USD/MXN
US stocks continued to trade in the green ahead of the Fed’s decision. Consumer confidence rose to a two-year high in July, the Conference Board (CB) revealed, with the index coming in at 117 from June’s 110.1, beating estimates of 111.8. While this is a positive sign, consumer perceptions of a recession have increased over the next 12 months. Meanwhile, other data showed U.S. home prices rose 2.8% year-on-year, the slowest since April 2012.
Meanwhile, the Richmond Fed revealed its Manufacturing Index fell to -9 from -8 in June, showing a bleak outlook as shipments and new orders fall sharply.
Despite mixed U.S. data, market participants expect the Fed to raise the federal funds rate (FFR) by 25 basis points, but there is uncertainty about further hikes, as some Fed policymakers have indicated ahead of the shutdown period. Even so, the FOMC statement would provide the basis for policy, and USD/MXN traders’ attention would remain on Fed Chair Powell’s press conference, which could signal the future of monetary policy.
Another reason that has acted as a tailwind for USD/MXN is the strong US dollar (USD) as depicted in the US. Dollar index (DXY). The DXY, which measures the USD’s performance against a basket of currencies, is almost flat at 101.375.
Across the southern border, Mexico’s economic report revealed that economic activity stalled at 0% month-on-month in May, below estimates of 0.4% and lagging behind April’s 0.9% expansion. The economy still grew year-on-year in May in unadjusted terms by 4.3%, above April’s 2.7%.
The International Monetary Fund (IMF) recently updated Mexico’s growth forecast for 2023 from 1.8% in April to 2.6% in July.
USD/MXN Price Analysis: Technical Outlook
The USD/MXN trend remains bearish as the diary shows diagram. Although USD/MXN has rebounded from yearly lows, the 20-day exponential moving average (EMA) at 16.9530 limits any attempts to push the spot above 17.00 as the 20-day EMA closely tracks price action and acts as dynamic resistance. However, if USD/MXN buyers enter once it clears the 20-day EMA, it will reveal a weekly high of 17.0500. A breach of the latter will expose the 50-day EMA at 17.2145, followed by the May 17 low turned resistance at 17.4038, ahead of the 100-day EMA at 17.6202. If it fails to break the initial resistance at the 20-day EMA, USD/MXN could challenge the YTD low of 16.6899 before falling to 16.50.