USD/MXN drops to 1-week lows as Trump excludes Mexico from tariffs

• Trump signed an order imposing tariffs but excluded Mexico and Canada. 
• Mexico and 10 more countries signed TPP-11.
• USD/MXN hit lowest since February 26. 

USD/MXN lost ground again on Thursday amid a rally of the Mexican peso. The strength of the US dollar was not enough to push the pair to the upside. It reached a daily high at 18.76 but a few hours later following the confirmation of the content of Trump’s order, dropped to 18.61.  

US President Trump formalized a 25% tariff on import steel and 10% on aluminum. It excluded Mexico and Canada. Trump said that the exemption depends on how NAFTA negotiations progress. 

On the same day, Mexico and 10 more countries signed the Trans-Pacific Partnership,  a trade agreement that will create the third largest trade zone. Trump withdrew the US from talks a year ago, it was one of his first orders.  

Mexican inflation 

Data released on Thursday showed that the Consumer Price Index in Mexico rose 0.38% to an annual rate of 5.34% in February that is the lowest in a year. The core CPI increased 4.27% from a year ago. The annual rate continues to slowdown but is still above the target range from 2% to 4% of the Bank of Mexico. The next meeting of the central bank is April 12.

Technical outlook 

USD/MXN holds a bearish tone in the very short-term. The recent slide was capped by an uptrend line from January lows. A break below would clear the way for an extension to 18.55 initially. Below that level support is seen at 18.45 before the key 18.30 region. 

If the pair manages to hold on top of the mentioned trendline (18.63), it could rise to test 18.80, above that area another test of 18.90/19.00 seems possible. A break above 19.00 would improve significantly the bullish outlook.