USD/MXN stumbles amidst rising US debt-ceiling uncertainty, Fed dovish minutes

• USD/MXN drops over 0.85%, snapping a six-day losing streak for the Mexican Peso amid negative market sentiment and US debt ceiling negotiation woes.
• The peso strengthened despite domestic uncertainty due to recent government actions, including the Grupo Mexico rails’ seizure.
• The latest Federal Reserve minutes reveal a divide among officials over future rate hikes, weakening the US Dollar.

The Mexican Peso (MXN) stages a comeback, snaps six days of losses, as the USD/MXN drops more than 0.85%, amidst deteriorated market sentiment, alongside uncertainty in talks of the US debt ceiling. Additionally, staff at the US Federal Reserve, projecting a mild recession toward the end of the year, weighed on the US Dollar (USD) vs. the MXN. At the time of writing, the USD/MXN exchanges hands at 17.8108, below its opening price.

Concerns over US debt ceiling talks and Federal Reserve projections weigh on USD, boosting MXN

USD/MXN resumed its downward trajectory after weakening since Monday, as over the weekend developments with the Mexican Government seizing rails owned by Grupo Mexico spurred a wave of uncertainty amongst the national and international business community. That, alongside expropriating private land in the State of Mexico, just three days after the Navy occupied Grupo Mexico’s railroads, weakened the Mexican Peso, as the USD/MXN reached a new weekly high of 17.9976.

Nevertheless, the USD/MXN retraced from weekly highs, despite recent developments surrounding German Larrea, Grupo Mexico’s owner, which withdrew from a bid to purchase Citibanamex, quoting worries that the Mexican Government could take it away from him. Mexican branch of Citigroup

The USD/MXN fell shy of testing the 18.0000 figure and dropped to a two-day new low of 17.7659 before reclaiming above the 20-day Exponential Moving Average (EMA) at 17.8010.

Aside from this, the latest minutes of the Federal Reserve showed that although officials voted for a quarter of a percentage increase to the Federal Funds Rate (FFR) for some of them, it would be the last hike; other members cautioned that some flexibility is needed. The minutes showed that Fed policymakers emphasized that no cuts are expected in the year while maintaining the chances for additional tightening if required.

As discussions resumed on Wednesday, little progress has been made regarding the US debt-ceiling discussions between the White House and the US Congress.

USD/MXN Price Analysis: Technical outlook

USD/MXN has shifted neutrally biased, as the Mexican Peso (MXN) weakened for six days. Even though upside risks lie at the 50-day EMA at 18.0167, failure to conquer the latter sends the USD/MXN plunging toward the 17.8000 area. The USD/MXN must reclaim the 20-day EMA at 17.8010 for a bearish continuation. Once cleared, the USD/MXN could dive toward the May 22 daily low of 17.6960 before diving to 17.5000. Conversely, if the USD/MXN stays above the 20-day EMA, the next resistance would be the confluence of the 50-day EMA and the 18.0000 figure. A breach of the latter will expose the 100-day EMA at 18.3495 before the USD/MXN reaches the April 5 daily high of 18.4010.