USD/MXN dips as hedge fund bets on Mexican peso rebounds

The Mexican peso has regained its momentum as the country’s economy continues benefiting from macro tailwinds. The USD/MXN pair was trading at 18.39, which was about 4.50% below the lowest point last week.

Mexico central bank decision

The USD/MXN price pulled back sharply last week after the latest interest rate decision by the Federal Reserve. As we wrote here, the Fed decided to hike rates by 0.25% even as the challenges in the banking sector continued. It brought the deposit facility rate to 5% even as some officials supported pausing rate hikes.

The next key forex news will be the upcoming decision scheduled for Thursday this week. Economists polled by Bloomberg expect that the bank will hike interest rates by 0.25% as it works to fight the elevated inflation. The bank will also signal that it will stop hiking rates soon. 

The Mexican peso, commonly known as the super peso, has been one of the top-performing emerging market currencies. It has been helped by the ongoing inflow of global manufacturers who are seeking to diversify their operations from China. The most recent major company that is planning Mexican investments is Tesla, the giant EV firm.

The USD/MXN price has also dropped as positioning among hedge  funds turned positive. Data published by the CFTC showed that the MXN speculative net positions jumped to 51.1k, the highest level since December 2022. It was a major development considering that the positions have been in the negative zone in the past ten straight weeks. In a note, an analyst at JP Morgan said:

“The Mexican FX market is competitive and almost perfect in terms of the flows coming in and out freely, without intervention by the central bank. That kind of thing makes it look favorable.”

USD/MXN technical analysis

USDMXN chart by TradingView

The USD to MXN forex pair has been in a strong bearish trend in the past few days. This sell-off started after the pair formed a major top pattern at 19.17. Its neckline was at 18.56. The pair has also moved below the 25-day and 50-day exponential moving averages (EMA) while the Relative Strength Index (RSI) has continued falling. 

Therefore, the pair will likely continue falling as sellers target the next key support level at 18.00. The stop-loss of this trade will be at 18.56.