USD/MXN Analysis: Mexican Peso Weakens Amid New Tariff Comments

The USD/MXN has reacted once again, posting a new bullish move of over 1 % today in favor of the U.S. dollar. The strong bearish sentiment surrounding the Mexican peso has resurfaced following recent comments by President Trump regarding additional tariffs, which have increased uncertainty surrounding the Mexican economy. As such statements continue to emerge, it is likely that selling pressure on the peso will become even more pronounced.

 

Trade War Tensions Escalate

 

U.S. President Donald Trump has reiterated the need to impose a new round of additional tariffs on the European Union and Canada if they refuse to cooperate and continue harming the U.S. economy.

The proposed tariff plan includes an additional 25 % tax on billions of dollars worth of imported cars and auto parts. This measure is expected to initially affect Mexico, Canada, South Korea, Japan, and Germany. The tentative implementation date for these tariffs is April 3.

In response, the European Union stated it will continue negotiations but will prioritize the economic interests of the region. The Mexican government has adopted a similar stance, maintaining ongoing talks with the White House. Meanwhile, the latest threats have once again heightened global economic uncertainty.

The CNN Fear & Greed Index currently reads 30, remaining in the “fear” zone. This signals that financial markets globally are still operating under a cloud of uncertainty, driven by the prolonged trade war. As long as the index remains at these levels, investors are likely to continue seeking stronger currencies, such as the U.S. dollar.

Source: CNN

With new trade war threats and a market sentiment anchored in fear, there has been a growing loss of confidence in currencies that are more vulnerable or directly exposed to the conflict. In this environment, the Mexican peso has shown consistent weakness, partly due to concerns that the country’s economic growth may be at risk.

If the trade war continues to escalate and uncertainty increases further, it is very likely that bullish pressure on the USD/MXN will become a dominant force in the short term.

 

How Is the U.S. Dollar Performing?

After a prolonged losing streak that began in early January, the DXY index, which measures the strength of the U.S. dollar, has started a steady recovery in recent sessions, climbing 1.36 % from the 103 level and approaching the key 105 mark.

Source: TVC, Tradingview

This trend reflects that the dollar has been gaining ground against the world’s major currencies. The recent bullish pressure is partly due to the Federal Reserve (Fed) maintaining a neutral stance and keeping the interest rate at 4.5 %, which has boosted demand for U.S. Treasury bonds and, by extension, for the U.S. dollar.

Additionally, the market sees the dollar as one of the few currencies that could withstand the impact of new tariffs imposed by the White House better than others. This positions the dollar as one of the preferred currencies amid the ongoing trade conflict.

If the DXY index continues to rise, it will likely further weaken the Mexican peso, sustaining upward pressure on the USD/MXN pair.

 

Technical Outlook for USD/MXN

Source: StoneX, Tradingview

 

• Broad Sideways Range: The USD/MXN continues to trade within a well-defined sideways channel, with a ceiling at 20.84 and a floor at 20.00 pesos per dollar. Recent bullish moves have maintained a steady push, now nearing the mid-range area, but for now the structure remains neutral on the daily chart.

   

• RSI: The Relative Strength Index (RSI) line is showing a bullish slope and has recently crossed above the 50 level, suggesting that the average momentum over the past 14 sessions is predominantly bullish. If the RSI continues to move away from the neutral level, buying pressure could become more significant in the short term.

   

• MACD: A similar pattern is seen in the MACD, as its histogram has crossed above the zero line for the first time in several sessions. This indicates that the average of the moving averages could shift to a bullish bias, adding further strength to buying momentum.

   

  Key Levels:

   

• 20.39 pesos per dollar – Key resistance: This level aligns with the mid-range area and the 50- and 100-period moving averages. A breakout above this level could be pivotal in initiating a short-term bullish trend.

   

• 20.84 pesos per dollar – Major resistance: Located at the top of the channel. If the price breaks above this level, it could confirm a bullish breakout, opening the door to a longer-term uptrend.

   

• 20.00 pesos per dollar – Key support: Marks the recent lows of the USD/MXN pair. A renewed downward move toward this level could revive the bearish bias that has faded in recent weeks.

 

 

Written by Julian Pineda, CFA – Market Analyst