The Mexican economy works in all sorts of ways as the country benefits from its proximity to the United States. As a result, the exchange rate US dollar / Mexican peso It fell this year and is hovering at its lowest level since April 2016. It’s down more than 33% from its peak during the pandemic.
Mexico’s economic growth
The world is undergoing major transformations and realignments as tensions rise between the world’s two largest economies. After the covid-19 pandemic and the Russian invasion of Ukraine, most companies have started to change their supply chains.
Today, many American companies have moved to Mexico for three main reasons. First, Mexico is extremely close to the United States. Secondly, the two countries have a free trade agreement, which means that most imports are not taxed.
Third, the cost of doing business in the country is relatively cheaper than in the United States. Although wages are higher in Mexico than in China, many companies save money through automation.
Recent data showed the strength of the Mexican economy. For example, figures released on Tuesday showed that retail sales in the country rose 1.5% on a monthly basis and 3.8% on a yearly basis. This increase was above the median estimates of -0.3% and 2.5%, respectively.
There will be two major catalysts for USD/MXN this week. First, Jerome Powell, Chairman of the Federal Reserve, will speak in Congress. It is likely that he will talk about the state of the economy and the actions that the bank will take.
Second, Mexico’s central bank meets on Thursday. With lower inflation in the country, there is a good chance that the Bank will decide to leave interest rates unchanged at 11.25%. If this happens, it will be the second month in a row that the bank has not raised interest rates.
Technical analysis of the USD/MXN pair
The USD/MXN exchange rate has been in a strong downtrend for the past few months. On the weekly chart, the pair has formed a head and shoulders pattern. It recently moved slightly below the neckline of this pattern at 5:35 PM.
At the same time, the pair moved comfortably below all moving averages, while the Relative Strength Index (RSI) fell to oversold levels. The Average Directional Index (ADX) rose to 26, indicating that the trend is strong. USD/MXN is likely to continue lower as sellers target the next key support level at 15.
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