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US election outcome to determine Banxico's action next week

The Mexican Peso remains vulnerable to developments in the U.S. elections which were reflected in the price action over the past two weeks. An improved likelihood of a Trump election victory was bad for the peso, while a higher likelihood of Clinton’s election victory was positive for the peso.

The peso’s is likely to edge higher on a Clinton victory. However, the positive momentum is likely to be small as markets have to some extent priced in a Clinton victory. On the flipside, a Trump victory would come as a surprise and would put massive pressure on the peso.

The Mexican central bank has over the course of the year raised the key rate despite the weak economy on account of the peso depreciation. This has proven that the Banxico is determined to fight a weak peso. Banxico meets next week to decide monetary policy and it may be forced to raise its key rate further in the case of a Trump victory. On the other side, the peso should recover further in case of a Clinton victory and the Mexican central bank should be able to leave rates unchanged in such an event.

Technical studies support upside for MXN. USD/MXN is currently trading with a weaker bias. The pair opened with a bearish gap on Monday and is trading a tight range today as we head into U.S. election results later in the U.S. session. 100-day MA at 18.78 is major resistance for the pair, while major support aligns by 200-day MA at 18.37.

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