Mexican Peso bottoms out after depreciating over 8.0% last week

• The Mexican Peso fell over 8.0% in its key pairs last week as a result of election volatility. 
• The Peso further weakens after a speech by outgoing president Obrador argues radical reforms are required to cure endemic corruption. 
• USD/MXN keeps marching higher and now trades well above 18.00.  

The Mexican Peso (MXN) makes a marginal recovery on Monday after losing over 8.0% in the previous week in its most heavily traded pairs. The slight bounce is probably driven by bears covering their shorts and taking profits after the outsized move in the previous week. 

All the votes have been counted for the Mexican election and reveal that the Morena party has won a supermajority in the Congress, as expected, but are two seats short of one in the Senate. Morena and its allies won 372 of the 500 seats in the Congress and 83 of the 128 seats in the Senate, according to Reuters. 

The result will still enable President-elect Claudia Sheinbaum’s administration to push through a controversial package of reforms that are rattling markets and leading to a depreciation of the Peso. However, they will have to win over some opposition senators to get their reforms through both houses. 

USD/MXN is 18.34 at the time of writing, EUR/MXN is trading at 19.75 and GBP/MXN at 23.34.

Mexican Peso weakens after AMLO tirade

The Mexican Peso’s post-election sell-off gained fresh momentum on Friday on the back of comments from the outgoing President Andres Manuel Lopez Obrador (AMLO) during his daily morning press conference. 

It was essential to push through reforms of the judiciary and dissolve autonomous bodies, like the INAI – the government’s transparency agency – because, in the words of AMLO, “The judicial power is hijacked, the service is taken over by a minority of those at the top. I have already said it here, and they know it very well. It is even shameful, but there are ministers who are like employees of large corporations,” according to El Financiero. 

Inflation data, also out at the end of last week, was mixed, showing a rise in headline inflation to 4.69% YoY in May from 4.65% in April, but a fall in core inflation to 4.21% YoY from 4.37%. 

Technical Analysis: USD/MXN marches ever higher

USD/MXN – the value of one US Dollar in Mexican Pesos – pushes above the 18.00 mark and peaks at 18.46, close to the 18.49 of October 2023. 

USD/MXN Daily Chart 

The extension higher suggests the short and intermediate-term trends are bullish, and given that “the trend is your friend”, price is likely to continue rising. 

The pair is now close to touching the key resistance level at 18.49, the October 2023  highs. A break above that level will probably see it go even higher, with the next target potentially situated at 19.22 (March 2023 high).

The long-term trend is probably still bearish, suggesting moderate background risks continue.