The Mexican Peso (MXN) was unable to hold onto its gains against the US Dollar (USD) on Thursday, despite solid US economic data that sparked speculation that there could be more rate hikes than just two by the Federal Reserve (Fed). At the time of writing, the USD/MXN exchanges hands at around 18.6481.
US economic data released on Thursday was mostly positive. The Producer Price index (PPI) for January rose by 0.7% MoM, above estimates of 0.4%, while Core PPI, which excludes volatile items, came at 0.5% vs. 0.3% foreseen. Initial Jobless Claims for the week ending on February 11 hit 194K, below the prior reading of 196K, and below the 200K foreseen by analysts, emphasizing the tightness of the labor market. On the other hand, the Philadelphia Fed Manufacturing Index plunged below estimates of -7.4, down to -24.3.
Despite the positive economic data, the MXN was unable to hold onto its gains against the USD, as market sentiment favored risk-on impulses, increasing demand for the Mexican Peso. The USD/MXN regained some composure after hitting a low of 18.5361, and although it hit a daily high of 18.6832, it has remained pressured.
From a technical perspective, the USD/MXN remains neutral-downward biased. Still, the positive divergence between the Relative Strength Index (RSI) and price action is looming, meaning that prices could move higher. For a bearish continuation, the USD/MXN needs to break below the YTD low at 18.4836, so it can test the psychological $18.00. On the other hand, if the USD/MXN reclaims the 20-day EMA at 18.7714, the USD/MXN would be poised to challenge $19.00.
The US economic calendar is a busy one on Thursday and analysts are closely watching the data, as it will give further clues on the direction of the Fed’s monetary policy. Cleveland Fed President Loretta Mester said she sees compelling evidence to hike rates by 50 bps in the upcoming meetings, as she sees upside risks to inflation. She also justified that the scenario supports the case for “overshooting” on policy.
Overall, the USD/MXN is still neutral-downward biased, but the positive divergence between the RSI and price action could make a case for a rally to $19.00. However, the US economic data will be key in determining the direction of the pair. If the data continues to be positive, the MXN could remain under pressure, while a weaker-than-expected data could help the MXN regain some ground against the USD.