The Mexican Peso seems seems to be taking its time in its effort to push higher, despite improving fundamentals.
Quarterly GDP data posted on Friday showed that Mexico's economy grew 0.4percent in the first quarter when compared with the prior three-month period, beating expectations which had predicted another contraction. Compared with the same quarter a year earlier, the market shrank 3.8percent in unadjusted terms.
Focus next week will be on the CPI reading for the month of April, after the half-month CPI data showed a 0.06percent increase in the first two weeks of April, with the core reading as high as 0.18 percent. This puts further pressure on Banxico -- Mexico's Central Bank - to decide whether it needs to focus on keeping prices stable or on attaining full employment and helping economic development.
We've observed other Central Banks around the world begin to demonstrate a more hawkish message because economical statistics show improving economies, but the likelihood of rate hikes is still pretty far away for many developed markets. However, Mexico may be one step closer and there'll be particular focus on the message delivered by Banxico in its next meeting on May 13th. Any sign that monetary policy might become less accommodative will be favorable for the Mexican Peso and we would begin to observe the carry trade debate return into play.
In the short term, the movement in bond yields is very likely to be the key factor underpinning USDMXN functionality, together with the US Dollar beginning to drop off some short positions after a month of successive selling. Joe Biden suggested on Wednesday another round of trillions of dollars of financial spending, only after recent statistics had shown the US economy accelerated from the first quarter of the calendar year, pushing US 10 year treasury yields above 1.68percent following a few weeks of cooling.
USD/MXN LEVELS
The recent movement in USD/MXN has set the 76.4% Fibonacci level (20.18) into play , an integral area that has served as immunity many times in the past couple of months once the pair picked up some bullish momentum. The present setup seems to imply that we may see backward consolidation within the next few days, though bears are at risk of losing the upper hand if USD/MXN remains over the 20 Pesos mark for too long, using bulls probably targeting to get back towards the 20.50 area. On the reverse side, a sustained break below 19.87 will be necessary to get bears back in management, using a drop towards the descending trendline (19.35) being the major objective.
