Mexican Peso recovers ground after upwards revision to Q1 GDP

• The Mexican Peso recovers ground versus the USD following the release of Mexican Q1 GDP. 
• The QoQ figure was revised up in the final estimate to 0.3% from 0.2% previously. 
• The FOMC minutes revealed a reluctance to lower interest rates which supported USD. 
• USD/MXN threatens to reverse the trend after completing a bullish reversal over the last two days. 

The Mexican Peso (MXN) recovers against the US Dollar (USD) on Thursday after the release of the final estimate for Mexican Gross Domestic Product (GDP) in Q1 shows an upwards revision of the quarter-on-quarter figure. 

The Mexican economy grew by 0.3% in Q1 compared to the previous quarter, up from 0.2% in the previous estimate, according to data from ENEGI released Thursday. The YoY figure, however, showed a GDP growth rate of 1.6% the same as the prior estimate. The upwards revision in the QoQ data gave the Mexican Peso a lift immediately after its release. 

The 1st half-month Inflation rate in Mexico, released at the same time, showed prices fell 0.21% which was slightly less than the 0.22% decline expected and may have contributed to the MXN’s gains. 1st half-month Core Inflation, meanwhile, rose by 0.15% as economists had estimates, the data from INEGI showed. 

USD/MXN is trading at 16.63 at the time of writing, whilst EUR/MXN is trading little changed at 18.05 and GBP/MXN at 21.19. 

Mexican Peso stalls in its uptrend post FOMC Minutes

The Mexican Peso lost more ground against the US Dollar on Wednesday, following the release of the Federal Open Market Committee (FOMC) meeting Minutes for the April 29-May 1 policy meeting. 

The summary of discussions revealed that although policymakers expected price pressures to ease eventually, they had not fallen quickly enough and therefore the current policy rate of 5.25% – 5.50% should be maintained “at least until September,” according to FXStreet. 

The strength of the labor market emerged as a key factor determining future policy.  

The possibility of raising interest rates in order to bring inflation down in a sustainable manner was also discussed as an option. This added a new more hawkish element to the proceedings and echoed similar discussions in the Reserve Bank of Australia’s (RBA) meeting minutes. 

The Minutes catalyzed a rally in the US Dollar, fueling a consequent rise in USD/MXN. 

Technical Analysis: USD/MXN meets resistance at trendline

USD/MXN – or the number of Pesos that can be bought with one US Dollar – meets resistance from the green trendline for the downtrend since April on Thursday.

The pair had formed a bullish reversal day on Tuesday which gained confirmation from the bullish close on Wednesday (shaded rectangle on the chart below), however after rising up and testing the green trendline it is once again declining. 

USD/MXN Daily Chart 

On Tuesday USD/MXN reached the conservative target, at 16.54, for the breakdown out of the range that formed from mid-April to early May. The conservative estimate is calculated as the 0.618 Fibonacci ratio of the range’s height extrapolated lower. 

The pair remains in a downtrend and there is still a high risk of further bearishness taking it lower. The next downside target is 16.34, the full height of the range extrapolated lower. A break below the Tuesday low of 16.53 would signal a continuation of the downtrend. 

Given the medium and long-term trends are also bearish, the odds further favor more downside.