USD/MXN Update: The Dollar Weakens While the Peso Holds Firm in an Uncertain Market

During yesterday's session, the U.S. dollar managed to recover nearly 1% against the Mexican peso, but in recent hours, fluctuations have once again favored the peso, as the dollar continues to show persistent weakness. Additionally, the announcement of new trade tariffs has increased uncertainty in the pair, as the Mexican automotive industry could be affected.

The Consequences of Tariffs

It has been several sessions since former President Donald Trump first announced his trade plans against countries like Mexico and Canada, where a 25% tariff on imports to the United States is expected to take effect in March.

So far, there have been no significant updates from the White House regarding the next steps of this economic plan, but uncertainty has already begun to generate impacts in Mexico.

A few days ago, Nissan's CEO, Makoto Uchida, mentioned that uncertainty surrounding tariffs could lead to an official withdrawal of automotive manufacturing that the company currently maintains in Mexico.

Last year, Nissan manufactured approximately 670,000 vehicles in Mexico, of which 456,000 were exported primarily to the United States. For this year, the company expects to reduce its exports to 320,000 units, which has led to considering emergency plans in case the new tariffs are imposed.

This could represent a significant blow to the Mexican automotive industry and, in the long run, affect investor confidence in other companies that currently produce in Mexico for export to the U.S.

If these measures extend to other key sectors, confidence in the Mexican peso could be impacted, potentially generating upward pressure on USD/MXN.

Meanwhile, Mexico’s Secretary of Economy, Marcelo Ebrard, is set to meet today with White House representatives to discuss the impact of tariffs and seek negotiations to adjust the measures.

The outcome of these talks remains uncertain, and the lack of direction in USD/MXN reflects this uncertainty.

The U.S. Dollar Continues to Weaken

A key factor that has favored the Mexican peso in recent sessions is the ongoing weakness of the DXY Index, which measures the strength of the dollar against a basket of major currencies.

Currently, the DXY has fallen by more than 1.6% over the last eight trading sessions, approaching a key support level at 106 points in the short term.

Source: TVC, Tradingview

The main reason behind this decline is growing concern over a potential trade war, as investors fear that new tariffs could slow economic growth in the U.S.

Additionally, the Federal Reserve (Fed) has decided to reduce its balance sheet, which has led to a decline in U.S. Treasury bond yields (10-year Treasury yields have fallen to 4.5%, maintaining a bearish bias). This has reduced appetite for fixed-income securities, which has weakened demand for the U.S. dollar in recent sessions.

If these factors persist, dollar weakness is likely to continue, which would further support the Mexican peso in the short term. Moreover, if positive developments emerge from the trade negotiations between Mexico and the U.S., USD/MXN could experience more sustained downward pressure.

USD/MXN Technical Forecast

Source: StoneX, Tradingview

• Sideways Trading Remains Dominant: USD/MXN has been trading in a sideways range for the past two months, with a ceiling at 20.73 pesos per dollar and a floor at 20.11 pesos.

  Recent price movements have caused bullish pressure to stall around the mid-range, failing to break out and define a new trend direction.

  Therefore, the sideways formation remains the key technical pattern to monitor in the upcoming trading sessions.

   

• Technical Indicators Reflect Neutrality:

   

  • MACD: Both the signal line and the MACD line maintain a steady downward slope. The histogram oscillates at the neutral level (0), indicating that moving averages lack a clear bias, reinforcing the market's indecisiveness.

     

  • RSI: The RSI line continues to fluctuate near the 50 level, indicating that bullish and bearish forces are balanced based on the last 14 sessions.

   

  Both indicators suggest that the market remains trapped in a sideways range, with no clear signs of an imminent breakout.

  As long as this neutrality persists, USD/MXN is likely to remain in consolidation, requiring stronger catalysts to define a clear trend.

   

  Key Levels:

   

• 20.4432: Intermediate resistance. This level coincides with the 50-period simple moving average and the midpoint of the sideways range. If the price holds at this level, the market's neutrality could extend further.

   

• 20.7332: Major resistance. This corresponds to the upper boundary of the range. If USD/MXN breaks above this level, the U.S. dollar could regain strength, reactivating the previous uptrend.

   

• 20.1121: Key support. This marks the lower boundary of the range. A break below this level could increase selling pressure, jeopardizing the current market neutrality.

Written by Julian Pineda, CFA – Market Analyst