Mexican Peso broadly weaker as market sentiment sours

• The Mexican Peso falls as market sentiment turns negative. 
• Equities are down after Meta shares tumbled on Q2 guidance and rising Middle East tensions. 
• The Peso loses ground against the Euro after Bund yields spike on Bundesbank president’s comments.   

The Mexican Peso (MXN), which is especially sensitive to risk aversion, trades overall lower on Thursday after weakening on souring market sentiment and rising geopolitical tensions. Still, the Peso is holding up against the US Dollar (USD), which sees renewed weakness ahead of the release of key US macroeconomic data.  

Mexican Peso hit by negative risk sentiment 

The Mexican Peso is losing ground due to a broad dip in market sentiment. Equities are down by 0.66% overnight and Meta’s stock tumbled 15% in after-hours trading on Wednesday despite better-than-expected earnings. The stock’s decline was put down to the company’s Q2 profit guidance, which came in at the lower end of projections, according to analysts at Deutsche Bank. 

The Peso may also have been impacted by a notch-rise in geopolitical tensions, after Israel said they had struck around 40 Hezbollah targets in Lebanon. 

“Currently, investors don’t appear as concerned as they were last week after Iran’s strikes…However, there are still nerves about the prospect of a further escalation, and the Israeli shekel (-0.26% against the US Dollar) lost ground after the headlines came through,” the Deutsche team wrote in a note on Thursday morning. 

Mexican Peso weakens versus Euro 

The Mexican Peso is down against the Euro on Thursday after benchmark German Bund yields spiked higher following comments from the President of the Bundesbank and European Central Bank (ECB) governing council member, Joachim Nagel.

Nagel said, on Wednesday, that although the ECB would still probably go ahead with a rate cut in June, further cuts down the road might not follow. 

Continued stubborn wage-related inflation in the services sector was the main bugbear, said Nagel, who added that until inflation had come down in a sustainable manner the ECB could not commit to a “pre-commit to a particular rate path.” 

Mexican Peso limps higher vs. US Dollar

The Mexican Peso (MXN) limps higher against the US Dollar (USD) in early trading on Thursday after a volatile midweek that saw the Peso eventually lose to the Greenback following better-than-expected US Durable Goods Orders on Wednesday. 

The US Census Bureau revealed that Durable Goods Orders in the United States increased 2.6% MoM in March, up from a 0.7% rise previously, and beating estimates of 2.5%. The data provided something of an antidote to the poor performance of US Manufacturing and Services PMI data released on Tuesday.

USD/MXN traders will now look to preliminary US Q1 GDP data out at 12:30 GMT for guidance. If the data shows continued strong growth in the US economy, it could help restore the image of US exceptionalism that has helped propel the Greenback higher in most pairs over recent weeks. 

Technical Analysis: USD/MXN corrects in short-term downtrend 

USD/MXN corrects in its short-term downtrend but more weakness is probably eventually on the cards.  

USD/MXN 4-hour Chart 

A break below Wednesday’s swing low at 16.91 would confirm further downside to the next key support level at April 17 low at 16.86, where a major Moving Average sits, providing dynamic support on a higher time frame chart. A decisive break below 16.86 could usher in further weakness to 16.50 and then the April 9 low at 16.26.

On the other side, a decisive break above the major trendline for the long-term downtrend at roughly 17.45 will be required to change the trend back to bullish, and activate an upside target at around 18.15. 

A decisive break would be one characterized by a longer-than-average green daily candlestick that pierces above the trendline and closes near its high, or three green candlesticks in a row that pierce above the level.