The USD/MXN pair has gained for the past seven straight days as investors reflect on the overall strong dollar. The pair is trading at 21.80, which is the highest it has been since November 4th last year. It has risen by more than 11% from its lowest level this year.
Mexican peso decline
The Mexican peso has been under intense pressure in the past few weeks. This decline has been mostly because of the overall strong US dollar considering that the DXY index has jumped to the highest level in more than a year lately.
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The USD/MXN pair has also soared because of the situation at the Mexican central bank. This week, President Andres Manuel Obrador spooked the market when he announced an obscure economist to be the governor.
The announcement came a day after the president shocked the market by withdrawing his previous nominee known as Arturo Herrera. The new nominee is Victoria Ceja who has no experience in monetary policy. Analysts are concerned about her lack of experience in the sector.
Like other emerging market central banks, the Mexican central bank has been under pressure in the past few months as the country’s inflation has surged. As a result, it has raised interest rates in the past four consecutive meetings in a bid to tame inflation.
Inflation has been rising, and recent data showed that the headline consumer price index (CPI) rose to 7.05% in the first half of November. This was the biggest increase in more than 30 years. Data published on Thursday showed that the country’s GDP rose by 4.5% in the third quarter, which was lower than the previous estimate.
The daily chart shows that the USD/MXN pair has been in a strong bullish trend in the past few weeks. This trend started when the pair moved to an important support level at 19.70. A closer look at the chart also shows that it has managed to move above the key resistance level at 21.64, which was the highest level in March this year.
The 25-day and 50-day moving averages have made a bullish crossover while the Relative Strength Index (RSI) has moved above the overbought level. Therefore, the pair will likely keep rising as bulls target the key resistance level at 23, which is about 5% above the current level.
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