USD/MXN: Peso in a bear market after Trump win, Banxico decision ahead

The Mexican peso crashed to its lowest swing since July 2022 after the US elected Donald Trump as the next president. The USD/MXN pair slumped to 20.80, 28% higher than the year-to-date low of 16.25. 

Donald Trump election

The USD to MXN exchange rate continued its uptrend after Donald Trump won the US election by a wide margin.

Data shows that he won all the battleground states like Arizona and Georgia. He also won the Electoral College, while Republicans won the Senate and are on track to win the House of Representatives.

Trump’s election will have a mixed outcome for the Mexican economy. First, his threat to impose large tariffs on Chinese goods means that many companies will move to Mexico, a country that has a friendly relationship with the US.

Second, there are odds that Trump will seek to further renegotiate the USMCA deal because of the rising trade deficit between the two countries. Data shows that the deficit jumped by 23% in 2022 to over $130 billion. 

Third, there are chances that the relationship between the US and Mexico will be strained because of immigration. As part of his campaign, Trump said that he would implement the Remain in Mexico program. To reinstate that program, he will need the collaboration of the Mexican president, and it is unclear if Claudia Sheinbaum Pardo will agree to that. 

Fed and Banxico policies

The USD/MXN pair also reacted to the actions of the Federal Reserve, which slashed interest rates by 0.25% on Thursday. It has now cut rates by 0.75% this year and hinted that more cuts were possible.

The next key catalyst for peso will be the upcoming Banxico interest rate decision scheduled on Thursday. 

Economists believe that the bank will slash rates by 0.25% in that meeting. If that happens, rates will drop to 10.25%. Banxico has slashed rates three times in its bid to supercharge the economy, which has been slowing in the past few years

Recent economic numbers showed that the headline Consumer Price Index (CPI) rose to 4.76% in October from 4.58% in the previous month. Core inflation, on the other hand, rose to 3.8% during the month.

There are also signs that the economy is not growing as was widely expected. In its last decision, the central bank slashed its forward guidance for the economy. 

USD/MXN technical analysis

USD/MXN chart by TradingView

The weekly chart shows that the USD/MXN exchange rate has been in a strong bull run in the past few months. It recently crossed the important resistance point at 20, a psychological price that is also slightly above the 38.2% Fibonacci Retracement level. 

The pair is also about to form a golden cross pattern as the 200-week and 50-week Exponential Moving Averages (EMA) are about to cross each other. This cross is one of the most important bullish signs in the market.

The Relative Strength Index (RSI) and the MACD oscillators have all pointed upwards. Therefore, the pair will likely continue rising as bulls target the 61.8% retracement level at 22.17. 

On the flip side, the pair has also formed a doji candlestick pattern, which may lead to a pullback to the 23.6% retracement level at 18.55.