USD/MXN quiet around 19.40, holds to strong weekly gains

• Mexican peso among worst performers of the week. 
• USD/MXN about to post biggest weekly gain since September. 

The USD/MXN pair is consolidating weekly gains hovering around 19.40. On Friday, it moved sideways, showing no significant moves. Over the week, it gained more than 1%, having the best performance since September. 

The combination of a stronger US dollar, particularly against Latin American currencies and technical factors pushed USD/MXN to the upside. Also there was an increase in the risks emerging from the lack of resolution in the US Congress regarding US-Canada-Mexico trade deal and also from the US-China negotiation. 

“In the near-term, fiscal austerity measures will continue to constrain growth. The government appears overly optimistic on domestic oil production, as well as on projected growth figures for 2020. Taken together with the expected deceleration in US growth and negative fixed investment trends, the risks to the downside for the Mexican economy are accumulating. We expect that Banxico will increase the pace and magnitude of rate cuts as the output gap widens, which should put downside pressure on the MXN”, explained Luis Hurtado, analyst at CIBC. They forecast USD/MXN at 20.1 during the first quarter of next year and at 20.6 during the third. 

From a technical perspective, USD/MXN rebounded from a strong long term support breaking a descendant line, reinforcing the bullish tone. The pair is about to post the first weekly close above the 20 simple moving average (19.32) pointing toward more gains but it needs first to break and hold on top of 19.50. The critical support is located around 19.00/05, below that level a slide toward 18.75 seems likely.