Mexican Peso weakens on investor fears over new administration

• The Mexican Peso declined on Thursday as a result of investor concerns regarding reforms the government wants to push through. 
• Critics say they are anti-democratic and market-negative. 
• USD/MXN renews its uptrend after a steep correction midweek.  

The Mexican Peso (MXN) pauses its decline on Friday after another bout of selling since the beginning of the week, sparked by investor fears regarding the market impact of radical changes to the Mexican constitution proposed by the country’s recently-re-elected left-wing administration.  

USD/MXN is exchanging hands at 17.88 at the time of writing, EUR/MXN is trading at 19.47 and GBP/MXN at 22.86.

Mexican Peso weakens again due to politics 

The Mexican Peso’s renewed bout of weakness started following comments from the head of the ruling Morean party in Congress, Ignacio Mier, who said on Thursday that he would be submitting controversial constitutional reforms to a discussion and vote in Congress. The reforms were proposed by outgoing president Andres Manuel Lopez Obrador (AMLO) back in February. Critics say they are anti-democratic and market-unfriendly. 

Sunday’s elections saw AMLO’s protege, President-elect Claudia Sheinbaum and her Morena party win a landslide victory. Although not all the votes have been counted yet, it looks like the party has probably won a supermajority (over two-thirds) in the Congress and also possibly in the Senate. If so, this would give it the power to push through AMLO’s radical reforms. 

The Peso lost 5% on Monday and Tuesday as early estimates showed the scale of the victory. Midweek it found a floor and recovered after the Mexican Finance Minister tried to reassure investors the government would continue to act with fiscal discipline and be pro-investment. Mier’s comments late Thursday, however, renewed concerns about the proposed constitutional changes.

On the data front, meanwhile, Mexican Auto Exports rose 13.0% year-over-year in May, while Auto Production rose 4.9% for the same period; this was lower than April's 14.4% for exports and 21.7% for production, according to data from INEGI.

Technical Analysis: USD/MXN resumes uptrend

USD/MXN – the value of one US Dollar in Mexican Pesos – resumed its uptrend bias on Thursday and is currently trading back up in the 17.80s. This comes after a decline to a low in the 17.40s on Wednesday. 

USD/MXN 4-hour Chart 

The recovery suggests the short and intermediate-term trends are still bullish, and given that “the trend is your friend”, the odds favor a continuation higher. The fact that bulls have managed to push the price above 17.54 (the last higher low) and another key level at 17.72 marks key victories and indicates lessening bearish pressure.

The pair is now close to touching resistance at 18.20, the June 4 high. A break above that level would add confirmation of a continuation higher to the next target at 18.49 (October 2023 high).

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