USD/MXN testing key support near 20.90 ahead of Banxico

• The Mexican peso rises across the board on Thursday.
• Banxico meeting ahead: rate hike of 25bps expected.
• USD/MXN could post the lowest close in almost a month.

The USD/MXN is falling for the second day in a row on Thursday with Banxico’s decision ahead. The combination of a stronger Mexican peso and a weaker dollar versus commodity and emerging market currencies pushed the pair further to the downside. It is hovering around 20.87, near monthly lows.

After making a run to 21.35 on Wednesday, immediately after the FOMC meeting, the USD/MXN turned to the downside and it has been falling since then. Currently, it is trading under 20.90, looking at the December low of 20.83. A consolidation under 20.85/90 should add more strength to the Mexican peso. The next barrier stands at 20.65.

If USD/MXN manages to hold above 20.85/90 a rebound toward 21.05 initially seem likely in the sessions ahead. Above the next resistance stands at 21.20 that also contains the 20-day moving average.

Banxico set to hike again

Among emerging market currencies, the Mexican peso is a top performs on Thursday ahead of Banxico’s decision. Market participants expect the Bank of Mexico to hike the key interest rate by 25 basis points to 5.25%. Some mentioned a potential for a 50 bps hike. The inflation rose further above 7%; and together with the new message of the Fed poses a challenge to Banxico.

Technical levels