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

March 25, 2022 2:36 PM

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 7th 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 26th, 2021 at 19.9366.  Below there, the next support is the 127.2% Fibonacci extension from the lows of February 23rd to the highs of March 8th 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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