Closeup view of one hundred dollar banknotes lying on the laptop keyboard.

USD/MXN tests its 200-day moving average ahead of the FOMC decision

The US dollar is extending its decline from the 20.0000 area against the Mexican peso on Wednesday, as investors are waiting for news from the Federal Reserve later in the day.

On Wednesday, the Federal Reserve is expected to maintain its interest rates at 0.25 percent. However, all eyes are focused on the statement and post-decision press conference hosted by the Fed’s chairman Jerome Powell.

The experts are looking for clues on how the economy in the US is doing, as well as the effects of high inflation rates on interest rates. Additionally, they will be watching tapering plans.

Any lack of tapering talk or actions regarding inflation will push the dollar down.

TD Securities analysts anticipate that Powell will say the recovery is keeping its momentum and even expect more success.

“Powell will likely acknowledge that the Committee has begun discussions about tapering plans, but that reaching the standard of “substantial further progress” remains a ‘ways off’.” The bank added that the “market priced for a cautiously optimistic outlook, but could bear flatten on a hawkish message.”

In the same line, economists at UOB expect “the Fed to keep its current policy stance unchanged in the July FOMC and the Jackson Hole Symposium (26 August) could see the first hint of taper, and we expect the first taper to be done in December 2021.”

USD/MXN remains under bearish pressure

USDMXN daily chart

Due to this scenario, the USD/MXN closed Tuesday its fifth consecutive day with a decline, and while the pair is trading sideways on Wednesday, the Fed’s message would push the dollar lower, giving the Mexican peso more room to move.

The USD/MXN currency pair lost 1.30 percent since reaching a peak of 20.1122 on July 21. It has now tested its 200-day moving average, which is now at 19.9770. If the pair manages to break below that level, it will face support at 19.90, where a dynamic uptrend support coming from June 9 lies.

Next supports are identified at 19.80, July 13 low, and the 19.74 level, which is July 2 minimum. Then, the 2021 lows area at 19.55 would be exposed.

A close above the 20.00 area would provide bulls with reasons to believe there is any upside potential. However, fundamental and technical factors continue to point south.