USD/MXN bearish sentiment remains after strong Mexico inflation

The USD/MXN wavered on Thursday after the Mexican statistics agency published the latest consumer inflation data. It is trading at 20.1737, which is slightly above this week’s low of 20.1325.

Mexico inflation heats up

Consumer prices in Mexico rose in March, putting pressure on the country’s central bank. According to the statistics agency, the headline consumer price index rose from 0.39% in February to 0.54% in March. This growth pushed the annual inflation from 3.76% to 4.67%. This increase was in line with the median estimate by analysts polled by Reuters.

The statistics agency attributed the higher consumer prices to energy as oil prices rose to the highest level in more than 12 months.

The data came a week after Banco de Mexico left interest rates unchanged at 4.0%. In January, the bank decided to slash interest rates by a quarter-point after failing to do so in November and December. Therefore, as inflation rises, the bank could be forced to hike rates in the near term. Furthermore, other emerging market central banks like the Brazil, Turkey, and Russia have all hiked. Others like the South African Central Bank have sounded hawkish.

The USD/MXN has dropped lately as forex traders bet that the Mexican economy will have a swifter rebound because of its proximity to the United States. The latter country has recently passed a large stimulus package that will indirectly flow to Mexico. The Biden administration has also unveiled a $2.3 trillion infrastructure package. Like the stimulus, the new spending plan will have a positive impact on Mexico. The same is true with the dovish stance by the Federal Reserve.

USD/MXN technical forecast

The USD/MXN price has been in a strong downward trend lately. On the four-hour chart, the price is below the 78.6% Fibonacci retracement level. It is also below the moving averages while the Stochastic oscillator has moved to the oversold level. Further, the price is slightly above the first support of the standard pivot points. Therefore, the pair may keep falling as bears target the second support at 19.93. However, a rally above the resistance at 20.37 will invalidate this trend.