Lower headline Mexico CPI. Will Banxico hike tomorrow?
Joe Perry February 9, 2022 11:20 AM
January headline CPI was weaker than December’s while the Core CPI was stronger. How will Banxico interpret this data?
Mexico’s CPI decreased for the second time in as many months to 7.07% YoY in January from 7.36% YoY in December and 7.02% YoY expected. However, the Core Inflation Rate for January increased to 6.21% YoY in January from 5.94% YoY in December and 6.16% YoY expected. The core inflation is at its highest level since September 2001! Note that the Bank of Mexico target’s 3% inflation.
What will the Bank of Mexico (Banxico) take away from the inflation data when they meet on Thursday? At the December meeting, the Banxico surprised the market by hike 50bps to 5.5%. A 25bps hike was expected. Markets are expecting another 50bps hike at the meeting tomorrow. It should also be noted that there is a new Governor at the Bank of Mexico, Victoria Rodriguez Caja. She has a tough task ahead of her as she tries to lower inflation without hurting the economy.
USD/MXN had been in a downward sloping triangle since the beginning of the pandemic in March 2020, forming a strong base between 19.5527 and 19.7062. The pair then broke above the descending line of the triangle on September 28th and continued higher to the 38.2% Fibonacci retracement level from the March 2020 highs to the January 20th, 2021 lows near 22.00. The pair had been moving lower since in a descending wedge formation, breaking out on January 18th. USD/MXN then retraced to a confluence of resistance on January 28th just below the 38.2% Fibonacci retracement level from the November 26th, 2021 spike to the January 17th low, horizontal resistance, and the 200 Day Moving Average. This range is between 20.80 and 21.00. The pair has been moving lower since.
Source: Tradingview, Stone X
On a 240-minute timeframe, USD/MXN is nearing support at the February 2nd lows near 20.4811. Below there, long-term horizontal support is at 20.1194, then the top of the band of support (see daily) at 19.7062, A confluence of resistance is just above at a short-term downward sloping trendline dating to January 28th near 20.6550 and the 200 Day Moving Average at 20.6724. Above there, price can move to the January 28th highs at 20.9144, then the previously mentioned 38.2% Fibonacci retracement near 20.9949.
Source: Tradingview, Stone X
January headline CPI was weaker than December’s while the Core CPI was stronger. How will Banxico interpret this data? The central bank meets tomorrow and a 50bps hike is expected. There is also a new central bank Governor. The question traders need to ask is: Will the CPI data cause central bank members to change their views?
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.