USD/MXN Analysis: The Mexican Peso Maintains Neutrality Amid Possible New Tariffs

Neutrality dominates the USD/MXN market, with the pair registering fluctuations slightly above 0.5% over the past five trading sessions. This behavior is largely due to the indecision generated in the U.S. dollar following the release of recent inflation data in the U.S. and uncertainty surrounding the new tariff comments from the White House.

Tariffs Remain in Place

Since Monday, the White House has reaffirmed its intention to impose a 25% tariff on all steel and aluminum imports entering the United States. In response to this new measure, the Mexican government has expressed its opposition and has requested the establishment of a special dialogue channel to present the potential impacts on the Mexican economy, arguing that there is insufficient justification for implementing this new tariff.

If these tariffs take effect on March 1, Mexican steel and aluminum products would face a nearly 50% cumulative tariff, significantly reducing their competitiveness in the U.S. market. This situation would force Mexico to seek new buyers for these raw materials, raising concerns about the impact on the peso's stability. A decline in exports could affect Mexico’s trade balance and weaken confidence in the currency, potentially strengthening the U.S. dollar.

Additionally, President Trump announced on Truth Social the implementation of reciprocal tariffs, where the U.S. would impose the same tariffs that other countries apply to American products. The official press conference is scheduled for 1 p.m., where further details on the application of these tariffs will be provided. The uncertainty lies in whether this new tariff package will further intensify existing threats to Mexico, which could further erode confidence in the peso and increase bullish pressure on USD/MXN.

The Role of the Bank of Mexico

On February 6, the Bank of Mexico decided to cut the interest rate by 50 basis points, bringing it down to 9.5%, a decision supported by the majority of the committee.

Source: Trading Economics

This decision was justified by the need to stimulate the Mexican economy and by the improvement in inflation levels in the short term. However, it was noted that this dovish approach could continue in future central bank meetings if current economic conditions persist.

In contrast, the Federal Reserve has taken a more restrictive stance following the release of recent inflation data. The current scenario presents a more aggressive FED, with a 4.5% rate, and a more flexible Bank of Mexico, maintaining a 9.5% rate.

If this monetary policy divergence persists, despite Mexico’s high interest rate, the market may begin to favor the FED’s aggressive stance, prioritizing U.S. bond yields over Mexican fixed-income securities, which, despite offering a higher rate, also carry greater risk. In the long run, this could concentrate demand for the U.S. dollar, intensifying bullish pressure on USD/MXN in the short term.

USD/MXN Technical Forecast

Source: StoneX, Tradingview

• Lateral Movement Intensifies: USD/MXN has been trading within a lateral range for the past two months, with a ceiling at 20.73 pesos per dollar and a floor at 20.11 pesos. However, recent movements reflect a lack of clear direction, which could extend market neutrality as long as the price continues to respect these levels.

   

• Technical Indicators Reflect Neutrality:

   

  • MACD: Both the signal line and the MACD line maintain a constant downward slope, and the histogram is approaching the neutral level of 0. This indicates that the market lacks a clear short-term direction.

     

  • RSI: The RSI line has followed a downward trajectory, reaching the neutral level of 50, reflecting a balance between buying and selling pressure with no defined trend.

     

  Both indicators reinforce the idea that the market remains trapped in a lateral range, with no clear signs of an imminent breakout. As long as this neutrality persists, the development of a new trend in USD/MXN could be delayed.

   

  Key Levels:

   

• 20.4432: Near-term support level, aligning with the 50-period simple moving average and the Ichimoku cloud. If the price holds at this level, market neutrality could extend, maintaining the current lateral range.

   

• 20.7332: Main resistance level, corresponding to the upper boundary of the lateral range. If the price breaks above this level, the U.S. dollar could regain buying strength, resuming its previous uptrend and reviving the bullish bias.

   

• 20.1121: Key support level, marking the lower boundary of the lateral channel. A break below this level could increase selling pressure, posing a risk to current market neutrality.

By Julian Pineda, CFA – Market Analyst