Banxico hikes rates 50bps; USD/MXN testing key support

The Bank of Mexico (Banxico) hiked interest rates on Thursday by 50bps from 5.5% to 6%, as widely expected.  The central bank said it was concerned about rising inflation due to the Russian/Ukraine war.  Central bank members revised their inflation outlook higher for 2022 to 5.8% from 4.9% in January.  They also revised their 2023 outlook on inflation to 4.6% from 4.5%.  In addition, growth forecasts were revised higher to 2% in 2022 from 1.7% and to 1.9% in 2023 from 1.8% previously.  Earlier in the day, Mexico released its mid-month CPI print for March at 7.29% vs 7.22% in February. Core CPI was 6.68% vs 6.52% in February.  The high inflation print was referenced in the statement and noted as the primary reason for the 50bps hike. 

What are emerging markets?

On a weekly timeframe, USD/MXN has been making lower highs since the pandemic highs at 25.7836 in March 2020.  In November 2021, the pair bounced to the 38.2% Fibonacci retracement from the March 2020 highs to the lows of January 2021, near 21.9307. That resistance held and price continued lower.  USD/MXN bounced once again and formed a shooting start candlestick at trendline resistance during the week of March 7^th and the pair has been moving lower since.

Source: Tradingview, Stone X

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On a daily timeframe, price has fallen from the trendline resistance for 11 of the last 13 trading days, including the last 9 trading days in a row. In addition, today, USD/MXN has broken the key psychological round number support level of 20.0000 and is testing horizontal support from October 26^th, 2021 at 19.9366.  Below there, the next support is the 127.2% Fibonacci extension from the lows of February 23^rd to the highs of March 8^th near 19.8008.  The next band of support sits below between 19.5481 and 19.7062.

Source: Tradingview, Stone X

On a 240-minute timeframe, notice that the RSI is extremely oversold after such a quick move lower.  This indicates the possibility of a near-term bounce.  First horizontal resistance sits above at 20.1661, then 20.2687.  Above there, USD/MXN can move higher quickly to horizontal resistance at 20.8324.

Source: Tradingview, Stone X

The Central Bank of Mexico increased interest rates by 50bps and revised its inflation forecasts higher. However, it seems that USD/MXN traders were already expecting it!  With the RSI so oversold on the 240-minute timeframe, watch to see if the pair bounces, especially if it can close today above the key psychological round number support of 20.0000.

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