September 26, 2019 4:53 PM
Banxico Cuts 25bps as Expected, USMCA in Play
The Bank of Mexico, Banxico, cut rates by 25bps to 7.75%, as expected. The decision was not unanimous though, as 2 members voted to cut rates by 50bps. However, possibly more important for the direction of the USD/MXN is that earlier in the day US House Speaker Pelosi said the House is moving ahead on the trade deal with Mexico to replace NAFTA. This comes after weeks of speculation from the Speaker that the USMCA (United States-Mexico-Canada Agreement) was not going to be enforceable, and therefore, would not be brought to the House floor.
USD/MXN was bid early in the session, in synchronicity with the DXY. However, upon news that the House will move ahead with the USMCA, the pair paused, just as it moved through horizonal resistance at 19.6675 and ahead of the 38.2% extension level form the August 29th high to the September 19th low, as shown on a 240-minute chart. The RSI is right at 70. A reading of 70 or above is considered to be in overbought territory. USD/MXN also broke out of a pennant formation today. The target for a pennant is length of the “flag pole” added to the breakout point of the pennant, which is 19.7825. This level coincides with the next area of resistance is 19.7932, which is the 50% retracement of the previously mentioned move. Given the USMCA news, the overbought RSI, and the 38.2% Fibonacci retracement level, a pullback may be in order first. Support is now near the breakout point of the triangle at 19.5850. Next level of support is the trendline of the pennant, which comes in around 19.5294.
Source: Tradingview, City Index
USD/MXN bulls will buy dips as the pair had pulled back and held previous support near 19.3700. They will be looking for a move up to the confluence of previous highs, the 127.2% retracement level of the June 4th highs to the July 5th lows (this was also the previous high), and the descending trendline going back to June 2018. That resistance zone is between 20.1108 and 20.1274.
Source: Tradingview, City Index
However, although the USMCA announcement was the only news mentioned regarding this today, watch for more comments regarding it. If the vote does go to the House floor and gets passed, this should be bullish for the Mexican Peso (bearish for USD/MXN).
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