The Mexican Peso advanced on Wednesday to levels not seen in almost three years (February 21, 2020) as investors keep an eye on the key US inflation report due out later today (Thursday).
Fed members have said Thursday’s CPI data will help decide the pace of interest rate hikes at their next meeting. The last increase was 50bp, already slowing down the 75bp streak.
At the next meeting on February 1st, the vast majority of investors (+80%) expect a 25bp rise, despite the fact that if the data is not favorable there could be a rise of more than 50bp. The current interest rate is at 4.25%-4.50% and a maximum close at 5.8% is expected depending on the data.
The current year-on-year inflation in the US is at 7.1% and is expected to drop to 6.5%, for which reason its slowdown is expected to continue from its highs of 9.1% in July. December monthly inflation is expected to decline to 0.0% from 0.1% and core inflation is expected to rise to 0.3% from 0.2%. On the other hand, new claims for unemployment benefits are expected to rise from 204k to 215k.
The USDIndex closed 0.0% today at 103.24, the US500 rose +1.28% to 3,969.31, the US100 rose +1.65% to close at 11,390.89 while the US30 rose +0.55% to close at 33,890.59.
US crude oil inventories increased by 18.962M barrels vs an expected drawdown of -2.243M barrels in the week ending January 6, according to the API in its report today.
Mexican inflation remains at 7.8% for the second consecutive month, halting its decline from the highs of 8.7% in August-September. The interest rate of Banco de México is positioned at 10.5% with its last increase at 50bp.
As core prices continued to accelerate in November, Banco de México signaled the need for policy tightening and raised its forecast for core inflation to peak in the fourth quarter of 2022 before moderating later this year.
Yesterday the S&P/BMV IPC rose 1.75%, its eighth consecutive session rising, reaching 53,262.18, its highest level since April. As a result, the Mexican stock market continued its bullish momentum and became one of the best performing stock markets among the world’s major stock markets since the beginning of the year, with a cumulative return of almost 10%.
Technical Analysis – USDMXN H4 – $18.9317 (-0.54%)
The #USDMXN has fallen from its highs at $19.9106 after forming a diamond that initiated the bearish momentum. It was accentuated with a dead cat bounce that broke the psychological level $19.0000 and posted a t $18.9080, a price not seen since February 21, 2020, but without reaching its minimum at $18.7957, which may come into play if the downward trend continues.
In the case of continuing bearish and breaking these lows, the price would have a free pass at the end of the cycle at $18.5201, the 2020 lows. On the other hand, resistances are at $19.000-$19.0346, the 20-period H4 SMA is at $19.0787, and the Fibo 38.2% is at $19.2910 which marks a range up to the Fibo 50% at $19.4093.
The price is currently breaking through the lower Bollinger Band at $18.9456 and closed the day that way. The RSI showed bullish divergence in the last 2 lows, however the price did not rise and is currently at 24.43 in the oversold area.
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Aldo W. Zapien.
Market Analyst
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