The low of October at 20.20/20.10 which is also the 200-day moving average has cushioned the recent USD/MXN dip. The spotlight today is on Banxico, which is expected to hike rates by 25bps. Economists at Société Générale expect the USD/MXN pair to grind higher towards the 21.00 level.

Only a break below 20.20/20.10 would denote a deeper decline

“Inflation in Mexico accelerated to 6.24% in October, moving further away from the 4% upper bound target. However, a surprise contraction in 3Q GDP of 0.2% QoQ tilts the balance towards a 25bp increase, not 50bp.”

“The risks of policy mistakes (power sector reform) and rise in US yields explain our bearish view on the peso.”

“The pair is expected to head gradually towards 21.00 and perhaps even towards the March high of 21.60/21.68 which is also a projection for the bounce.”

“Only a break below 20.20/20.10 would denote a deeper decline.”