USD/MXN Update: The Mexican Peso Holds Amid Temporary Tariff Suspension

After a long session of indecision in USD/MXN movements, during which the pair surged by more than 4%, the Mexican peso has managed to recover nearly all of its losses and remains in a neutral zone against the U.S. dollar. This swift recovery is due to the temporary suspension of tariffs that were set to be imposed on Mexico in the short term.

Agreements Reached

The White House's original plan was to impose 25% tariffs on all imports from Mexico as a measure to protect the United States from illegal migration and drug trafficking at the border. Initially, this news triggered high demand for U.S. dollars, pushing USD/MXN to a high of 21.29 pesos per dollar, a level significantly above the highs recorded in recent months.

Now, the situation has changed. After a 45-minute call between President Claudia Sheinbaum and President Trump, a temporary suspension of the 25% tariffs was agreed upon, which could last for at least a month. This decision came after the Mexican government agreed to cooperate with U.S. initiatives and began deploying 10,000 National Guard troops along the northern border to control migration issues and drug trafficking. This move has restored short-term confidence in the Mexican peso, explaining the recent bearish pressure that has dominated USD/MXN trading over the past two sessions.

On the other hand, this episode has highlighted Mexico’s strong trade dependence on the United States, which could pose future challenges. With Trump in office, trade tensions could become a recurring issue for Mexico, forcing the country to diversify its trade routes and reduce its reliance on the U.S. market, which accounts for nearly 80% of its exports. If tensions with the White House persist and Mexico’s economic conditions deteriorate, downward pressure on the Mexican peso could intensify further in the long term.

USD/MXN Technical Outlook

The sharp indecision seen in yesterday’s session was nothing more than a temporary scare for the Mexican peso. However, the key takeaway from the USD/MXN chart is that buying pressure can activate at any moment, reinforcing the pair’s bullish trend since April 2024.

Source: StoneX, Tradingview

Sideways Movement Continues: Price movements over the past two months have fluctuated within a neutral range, with a ceiling at 20.73 pesos per dollar and a floor at 20.11 pesos per dollar. So far, the candlesticks have not been strong enough to break out of this formation in the short term, and the price remains in the middle of the channel, indicating a neutral bias without a clear direction for USD/MXN.
MACD: Both the signal line and the MACD line have adopted a downward slope and are approaching the neutral 0 line on the indicator. Meanwhile, the histogram has shown brief bearish oscillations below the neutral line in the past two trading sessions. Both factors suggest that indecision is dominating recent price averages, which could indicate that the neutral channel will remain intact on the chart.
However, if the histogram moves further away from the neutral 0 level in the coming sessions, this could be a key signal of increased selling pressure that may revive a forgotten bearish bias.

Key Levels:
20.4432: A nearby support level that coincides with the barrier marked by the 50-period simple moving average. If the price holds at this level, market neutrality could persist, extending the current sideways range.
20.7332: The main resistance level for USD/MXN, aligning with the top of the sideways range. If the price breaks above this level, the U.S. dollar could regain buying momentum and resume its previous uptrend.
20.1121: A key support level marking the lower boundary of the sideways channel. A break below this level could trigger stronger selling pressure and pose a risk to the current neutral stance on the chart.

Written by Julian Pineda, CFA – Market Analyst

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