The USD/MXN exchange rate has pulled back in the past few days, moving from a high of 18.20 on Monday to 17.93. This retreat may continue after the pair formed a rising wedge pattern on the daily chart.
Federal Reserve and Mexico Central Bank Divergence
The USD/MXN exchange rate has retreated in the past few days as signs emerged that the ongoing war in Iran may be about to end soon.
There are signs that President Donald Trump has gotten bored with the war as his poll numbers have escalated in the past few weeks. As a result, he is considering ending the war even without achieving his goals, like regime change and unconditional surrender.
The challenge, however, is that Iran is skeptical about talks with the United States. Besides, officials believe that they have time to punish the US and its allies, which will prevent future attacks.
The pair has also reacted to the ongoing Federal Reserve and Mexican Central Bank. With the US inflation soaring, analysts expect that the bank will maintain a hawkish tone in the coming meetings.
The Mexican Central Bank, on the other hand, has been cutting interest rates. It slashed rates by 0.25% in its meeting last week, bringing the benchmark to 6.75%. Officials believe that they are close to the finishing line in the cutting cycle of cuttting rates.
The USD/MXN pair will react to the upcoming US macro data, which will come out on Wednesday. ADP will publish the latest non-farm payrolls (NFP) data. Also, the country will release the latest retail sales and manufacturing PMI report.
USD/MXN Technical Analysis
The daily chart shows that the USD/MXN pair peaked at 18.20 this week. This is an important level as it was the lowest level in September last year. It has remained slightly on the 50-day moving average.
On the other hand, the pair has formed a rising wedge pattern, which is made up of two ascending and converging trendlines. The two lines are nearing their convergence pattern.
The pair will likely have a bearish breakout in the near term, potentially to the key support level of 17.60. However, a move above the key resistance level at 18.20 will invalidate the bearish outlook and point to more gains.