USD/MXN drops amid a slide of USD and a rally in crude oil

• Mexican peso recovers ground as crude oil soars. 
• Latin American currencies start the week in positive vs. USD.
• Key event ahead: Banxico meeting.

The USD/MXN pair continues to move in a wide range between 19.30 and 18.90. Today the Mexican peso gained momentum across the board and erased most of Friday’s losses. The rally in crude oil prices and a weaker US Dollar pushed USD/MXN to the downside. 

The pair bottomed at 19.02, moving away from the key 19.30 resistance. Still the overall tone favors the upside. In order to extend gains price needs to break and hold on top of 19.30. While on the opposite direction, a slide below 18.90 would signal an extension of the bearish correction. 

USD/MXN consolidated last week after rising more 9% between September 25 and October 28. Price stabilized at a significantly higher level. One of the key reasons for the recent rally were NAFTA negotiations concerns. The rally in crude oil prices likely limited the upside in the pair. Today the WTI barrel is up 3%, trading above $57.00 at the highest in two years. 

Key event of the week: Banxico

With a light economic calendar in the US over the week, the Bank of Mexico meeting will take center stage. No change in rates is expected on Thursday. Traders will look into the statement for clues about the future path of monetary policy, particularly what could Banxico do at the next meeting if the Federal Reserve rises rates as market participants are discounting. On Thursday, before the meeting, inflation data will be released.

Mexican central bank kept rates unchanged during the last meetings despiting rising inflation. Policy markets expect inflation to slowdown in coming months. If the peso continues to slide and if the Fed raises rates, the odds of rate hike from Banxico in the near future could rise, for no good reasons.