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Banxico could squeeze in a rate cut.

Oil prices, monetary policy, and a strong US dollar blended together with possible rate cuts by the Banco de Mexico, meaning we may have a trading opportunity today.

The Mexican peso could be an interesting trade today as the Brazilian central bank recently raised interest rates. I figure today's Mexican rate decision may surprise us and therefore be a forex mover during the US session.

Mexican rates are expected to be held at the 4.0% level by Banco de Mexico, with analysts predicting a possible 25bps move lower rather than higher should there be a change following on from the cut in February. At the last meeting, the executive board voted unanimously in favour of lowering the policy rate by 25 basis points to 4% for the first-rate cut since September 2020.

The increase in the US yields has been felt across Latin American rates, as the US2/10 yield curve steepened. The monetary policies of Latin America have been similar to those other global regions with loose and accommodative policies but recent moves like the one in Brazil show that these monetary policies may be coming to the end of their cycle and that we could see tightening across Latin America monetary policies going forward.

Mexico is a net exporter of Oil, so the rise in Crude has been good for the Mexican peso and inflation targets of 3% are being pushed to their upper range limits currently, as the Mexican inflation rate is consistently higher than 3.5% today and for the foreseeable future. Baxinco has openly discussed further easing in 2021 as they try and push back against any tightening expectations brought on by the actions from Brazil and increasing inflation expectations due to the reflation trade and energy prices.

Trader sentiment is 83% bearish the USDMXN so favouring an appreciating peso with the increase in energy prices. On the daily chart, the USDMXN is above the 200-exponential moving average but trading within the range formed by the March 2021 swing highs and lows. There is also a multi-year sloping trend line which has now had 3 touches ranging from the origination in June 2020, through September 2020 and to the previously mentioned March 2021 swing high. This line of resistance could cap further US dollar appreciation and combined with the US dollar index coming into resistance, a close below the daily 200 ema on the USDMXN could be the bearish signal retail traders need to add to their positions.

On the H4 chart, it is clear to see that technically the March trading range has had its 50% mid-level tested and has been found to be the resistance level capping current price appreciation. Adding to the expectations of the technical analysts that we could be in for a turn here to the downside. The 21.00 to 21.30 level would be a safer short or traders could wait for a break, retest the rising support trend line before continuation lower.