USD/MXN traded near 17.56 on Wednesday, down 0.74%, as improved risk appetite supported the Mexican Peso. Middle East hostilities continued for a fifth day, while US data had limited impact on the pair.
The ISM Non-Manufacturing PMI for February showed New Orders rising from 53.1 to 58.6, the highest since September 2024. The Services index rose from 53.8 to 56.1, above the 53.5 forecast.
The ADP National Employment Change report showed private hiring increased by 63K in February. January was revised down to 11K, and the market estimate was 50K.
Mexico had no major releases, with Gross Fixed Investment due on March 5 and the final February CPI print on March 9. Banxico’s poll projected 2026 headline inflation at 4% and core CPI at 4.17% versus 4.11% previously.
The poll also forecast 2026 growth rising from 1.5% to 1.8%, with the following year unchanged. USD/MXN was seen ending at 18.10 versus 18.50, and Banxico was expected to cut rates by 50 basis points to 6.50%.
Technically, USD/MXN sat above the 20- and 50-day SMAs at 17.25 and 17.50, with the 100-day SMA at 17.91. Support includes 17.00, while resistance includes 18.00 and a trendline linked to April 2025 highs near 21.07.
The market is sending mixed signals right now, as strong US economic data is being ignored in favor of general risk appetite, pushing USD/MXN down. We see the pair holding above the key 17.50 level, suggesting a period of consolidation before the next major move. This uncertainty is heightened by upcoming US employment reports and Mexican inflation data.
We must pay close attention to the shift in tone from the Bank of Mexico, which is now openly discussing rate cuts. This is a major change from the aggressive rate-hiking cycle we witnessed through 2024 and 2025 that created a very attractive interest rate differential over the US. The “carry trade” that benefited the peso for so long may be starting to unwind.
Given Banxico’s expected pivot, we should consider buying medium-term call options on USD/MXN to position for a potential reversal higher. If Banxico signals a faster cutting cycle than the market’s current 50 basis point expectation, the pair could move swiftly towards the 18.00 level. This strategy offers a defined-risk way to profit from a change in central bank policy.
Implied volatility will likely increase heading into the Mexican CPI release on March 9 and the US jobs data. Traders who anticipate a significant price swing, but are uncertain of the direction, could look at buying straddles or strangles. This would allow us to profit from a sharp move either up or down from the current 17.56 range.
However, we should not forget the strong fundamental tailwind for the peso from the nearshoring trend, which saw foreign direct investment hit records in recent years. This underlying demand for the peso could limit any significant upside in USD/MXN. For those with a moderately bullish view on the pair, a call spread could be a more prudent strategy to cap risk.
The technical picture supports a potential shift in momentum, with the price breaking a key downtrend line from the April 2025 highs. We are now watching the 100-day moving average at 17.91 as the next critical resistance level to be broken. A decisive move above this could trigger a larger rally toward the 18.10 forecast by analysts.
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