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What Next For USD/MXN After Sudden Surge in Mexican CPI

July 8, 2022

The USD/MXN price is hovering near the highest point since March this year after Mexico published strong consumer inflation data. The pair is trading at 20.6157, slightly below this week’s high of 20.78.

Economic data published by the Mexican statistics agency showed that the country’s consumer inflation surged to a 21-year high in June this year.

The headline CPI rose from 0.18% in May to 0.84% in June on a month-on-month basis. This increase was better than the median estimate of 0.81%. 

As a result, Mexico’s inflation rose to 7.99% on a year-on-year basis, which was higher than the expected 7.95%. Inflation was driven mainly by the ongoing increase in oil and gas prices. Excluding the two, the country’s core inflation rose from 0.59% to 0.77%. 

Therefore, the USD/MXN retreated slightly as investors’ price in more tightening by the Mexican central bank. Banxico has an inflation target of 3% and is working to lower it by hiking interest rates. It has already made four rate hikes this year and there is a possibility that it will continue the trend.

The Mexican central bank is battling a unique situation where high inflation is accompanied by slow growth. As a result, more hikes will likely lead to a recession in the coming quarter.

Worse, the American economy is not doing well either. Analysts expect that a recession will happen this year. Mexico does well when the American economy is booming.

The next key catalyst for the USD/MXN price is the upcoming US non-farm payroll data that will come out on Friday. On Thursday, data by Challenger revealed that the number of job cuts increased by 32.51k in June. Analysts expect official data to show that the unemployment rate remained at around 3.6% in June.

The four-hour chart shows that the USD/MXN pair has been in a strong bullish trend in the past few days. The pair has surged by more than 6% from its lowest level in June. It has also formed a cup and handle pattern. In price action analysis, this pattern is usually a bullish sign. 

The pair has also risen above the 25-day and 50-day moving averages. Therefore, the Mexican peso will likely continue slipping as the risk-off sentiment prevails. If this happens, the next key point to watch will be at 21.

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