USD/MXN tumbles toward 19.20, lowest in three weeks amid a stronger Mexican peso

• Advances in the US-Canada-Mexico trade deal ratification contribute to the rally of the Mexican peso.
• Improvement in Latin American currencies and Mexican inflation data also weight on USD/MXN.

The USD/MXN is falling today for the fifth day in a row and now is testing an important support area near 19.20. It has constantly been falling on a rally that started amid a recovery in Latin American currencies and on Monday, trade deal headlines and Mexican inflation numbers appear to be behind the extension of the decline in the pair.

USMCE (T-MEC) boost optimism

The Mexican peso is among the top performers in the currency market on Monday amid optimism that the US Congress will finally approve the new NAFTA. The New York Times reported that Democratic lawmakers “are nearing an agreement to bring the revised North American free trade deal to a vote after securing additional labor, enforcement and other provisions and winning the support of top labor leaders.”

The trade agreement between the US, Mexico and Canada to replace NAFTA was signed a year ago but it still needs to be ratify the US Congress. If it fails, the Mexican peso would likely drop sharply.

Mexican inflation at three-year lows

The Mexican statistics agency (INEGI) announced today that over the last twelve months, the Consumer Price Index rose 2.97%, the lowest since September 2016 and below the 3.0% expected. The decline in inflation leaves the door wide open to more rate cuts at the Bank of Mexico.

At the last meeting, two out of the five board members wanted a more aggressive cut (50bp against the 25bp cut delivered). If the Mexican peso strengthens, the odds of a larger cut should rise.

Levels to watch

From a technical perceptive, the bias continues to point to the downside in USD/MXN that is testing the key 19.22 support area. A break lower would likely expose the long-term uptrend line resistance at 19.00/05.

A recovery back above 19.30 would alleviate the bearish pressure while only above 19.37 (20-day moving average), the greenback would strengthen.