USD/MXN falls below key technical levels amidst US growth slowdown, Mexican record exports

• US Q1 2023 GDP Advances by 1.1% QoQ, falls short of 2% estimates as inflation surges to 4.9%.
• Fed May meeting: CME FedWatch tool predicts 87.1% chance of rate hike; stagflation looms.
• Mexico’s exports hit a record high of $53.6 billion, boasting a surplus.

The USD/MXN erased its Wednesday’s gains, dropping below crucial technical levels, after growth in the United States (US) decelerated, via a report for the Commerce Department. That, alongside a tranche of US economic data, softened the greenback. At the time of writing, the USD/MXN is trading at 18.0548, down 0.50%.

USD/MXN at two-day lows, eyeing 18.0000

The Mexican Peso (MXN) regained its strength, underpinned by lower-than-estimated growth in the US. The US Department of Commerce revealed the GDP Advance for Q1 2023 rose by 1.1% QoQ, below estimates of 2%. In the same report, quarterly core inflation aimed towards 5%, at 4.9%, exceeded forecasts and justified the Fed’s May rate rise increase.

The CME FedWatch Tool predicts there’s a chance of 87.1% for a 25 bps at the May meeting by the Fed. That paints a possible scenario of stagflation: the US economy decelerates while inflation continues to be sticky above the Fed’s target twice and a half.

On another data, the US Department of Labor (DoL) revealed that Initial Jobless Claims were lower than estimated, snapping three consecutive reports that flashed signs that the labor market was easing.

Aside from this, Mexico’s exports reached a record $53.6 billion, with the country printing a surplus, due to the arrival of investments and factories across the US border.

USD/MXN Technical Analysis

After hitting a weekly high of 18.1968, the USD/MXN tumbled below the 20-day EMA at 18.1106 and accelerated towards 18.0500. An upslope trendline drawn from March lows that passes around the 18.0450-18.0500 area capped the USD/MXN fall. Though a bearish continuation remains in play, the RSI indicator accelerated its downward trajectory, while the Rate of Change (RoC) portrays buying pressure waning. IF USD/MXN breaks below 18.0500 in the coming days, the pair could head toward the 17.9505 area. Once broken, the YTD low is up for grabs at 17.8968. Conversely, USD/MXN is climbing above the 20-day EMA, but upside risks remain.