Mexican Peso Rebounds Amid Easing Recession Fears

Asian markets have rallied, echoing Friday's positive performance on Wall Street. This uptick has helped to stabilize the MXN, which is known for its sensitivity to market volatility.

Currently, the USD/MXN exchange rate stands at 18.83, while EUR/MXN and GBP/MXN are trading at 20.58 and 24.03, respectively.

Banxico's Rate Cut Ignites Unexpected Peso Strength

Despite three consecutive days of gains, the Mexican Peso's overall outlook remains uncertain. While the recent recovery is attributed to improved market conditions, underlying factors could limit the currency's upside potential.

Last week's surprise interest rate cut by the Bank of Mexico (Banxico) defied expectations and initially boosted the Peso. However, analysts caution that reduced carry trade flows due to lower interest rates could dampen demand for the MXN going forward.

"We anticipate a decline in Yen-funded carry trades and believe the Peso is nearing its fair value," said Giulia Bellicoso, Assistant Economist at Capital Economics.

Technical Analysis: USD/MXN Pullback Within Upward Trend

Technical indicators suggest a short-term correction within a longer-term bullish trend for USD/MXN. The pair is currently trading within an upward channel on the 4-hour chart.

A breakdown below Friday's low of 18.77 could signal further downside, with potential targets at 18.44 and 18.35. However, strong support is expected around the 18.30 level.

The Relative Strength Index (RSI) is approaching oversold territory, indicating potential for additional price declines before a rebound.