On Friday, the Mexican peso (MXN) is stabilizing against the US dollar (USD) after regaining some of its losses from Thursday when Banco de Mexico (Banxico) lowered interest rates as planned. As of this writing, the USD/MXN pair is trading near 19.485, down 0.04% for the day, as it retraces slightly following Thursday’s rebound. The main factors influencing the movement of the pair are ongoing uncertainty in trade and the differing policies of central banks.
Traders are waiting for the early release of the University of Michigan consumer sentiment data at 14:00 GMT, a significant event that could affect the short-term direction of USD/MXN. The United States is also set to publish three closely watched indicators: the Consumer Sentiment Index, the Consumer Expectations Index, and the 1-year and 5-year Inflation Expectations for May. These measures provide timely insights into consumer confidence, perceived price pressures, and consumer behavior, which are all critical in determining Federal Reserve (Fed) policy expectations.
The Fed has taken a cautious approach due to recent weak economic data and persistent uncertainties in the supply chain. Fed Chair Jerome Powell addressed these issues after Thursday’s release of April figures, discussing slowing momentum and potential inflation risks. The Producer Price Index (PPI) unexpectedly dropped by 0.5%, its most significant decline since 2009, while retail sales only saw a slight increase of 0.1%, indicating subdued consumer demand.
During his speech at the Second Thomas Laubach Research Conference on Thursday, Powell stated that “the economy may experience more frequent and persistent supply shocks,” but reassured that the Fed will remain “attentive to any signs of cooling demand,” and that although “inflation is heading in the right direction, the path ahead is uncertain.” These developments may delay any shift towards easing policies, but they highlight the challenging balancing act the Fed faces as it monitors both inflation and growth risks simultaneously.
On the opposite side of the policy spectrum, Banxico lowered its benchmark interest rate by 50 basis points on Thursday as expected, bringing it down to 8.5% in a unanimous decision. This marks the seventh consecutive rate cut as Banxico attempts to stimulate the sluggish domestic economy. In its post-meeting statement, Banxico stated that “the Board expects to continue adjusting the monetary policy stance and consider similar rate cuts,” and that “the inflation environment allows for a continued rate cutting cycle while maintaining a restrictive stance.”
With Banxico signaling further easing and the Fed maintaining a cautious but steady stance, the policy divergence continues to favor the US dollar. However, USD/MXN remains vulnerable to changes in market sentiment, and the University of Michigan sentiment data has the potential to add more volatility. Developments in trade policies and inflation expectations will also be crucial factors in shaping the short-term direction of the peso.
USD/MXN remains under pressure and has fallen below the 78.6% Fibonacci retracement level of the October to February rally at 19.57. The pair is currently trading around 19.45, failing to break through the key psychological level of 19.50, with 19.40 acting as immediate resistance. This confirms the ongoing downward momentum and suggests that sellers are still in control.
The consolidation range shown in the yellow box has continued to contain price action in the past few weeks. However, repeated failures to break higher and the overall downtrend indicate that a continuation of the bearish trend is likely. This technical setup aligns with the persistent downward pressure as the pair struggles to gain traction above its short-term moving averages.
The next significant support level is near the October low at 19.11, which could serve as a medium-term target if bearish momentum persists. A break below this level would open the door to further losses, potentially reaching the psychological level of 19.00.
On the upside, initial resistance is seen at 19.40, followed by the 78.6% Fibonacci retracement level at 19.57. If this zone is broken and sustained, it could signal a change in sentiment and bring the psychological resistance level of 19.60 back into focus.
The 10-day Simple Moving Average (SMA), currently at 19.53, continues to act as dynamic resistance as it has repeatedly prevented higher upside attempts. Meanwhile, the Relative Strength Index (RSI) stands at around 40, indicating mild downward momentum. It is not yet in oversold territory, suggesting that there is still room for further downside before a potential rebound becomes more likely based on technical analysis.