The Mexican peso rises as lawmakers prepare to debate constitutional reforms

• The Mexican peso is trading slightly higher in its key pairs, but remains in a firm downtrend overall.
• The adoption of constitutional reforms as they are debated could provide volatility for the MXN going forward.
• USD/MXN is stopping within an uptrend in a rising channel.

The Mexican peso (MXN) is trading marginally higher in its key pairs on Tuesday during the European session as a sense of calm pervades the markets, which are slightly benefiting from risk on the peso. Despite the temporary rise, the overall MXN trend remains down and looks set to continue.

Mexican peso traders are considering possible volatility from constitutional reforms

Mexican peso traders will watch for passage of a controversial set of constitutional reforms involving how judges are elected that are due to be debated in Mexico’s Congress on Tuesday and Wednesday, according to Reuters. Concerns about these reforms have weighed on financial markets in the past, and similar weakness is expected if they are ultimately voted on and implemented.

Mexico’s government led by Morena has more than a two-thirds majority in the lower house, which should allow them to vote on the proposed reforms. However, they are one vote short of a majority in the Senate, so there remains some uncertainty about whether the legislation will pass immediately.

The reforms have been heavily criticized for undermining the rule of law and democracy, although their defenders say they will help combat the influence of criminal cartels on the justice system. From a financial point of view, they risk leading to a decrease in foreign investment. This, in turn, would reduce demand for the Peso, leading to further depreciation of the currency.

In terms of economic data, the Mexican unemployment rate for July and gross fixed investment for June are scheduled to be released on Tuesday.

Recent macro data from Mexico was mixed, with the S&P Global Mexico Manufacturing Purchasing Managers (PMI) index falling to 48.5 in August from 49.6 in July and marking the lowest level in two years. Business confidence, however, rose two basis points to 53.2 in August.

At the time of writing, one US dollar (USD) buys 19.79 Mexican pesos, EUR/MXN trades at 21.87 and GBP/MXN at 25.96.

Technical Analysis: USD/MXN is consolidating in an uptrend

USD/MXN is stopping within an uptrend in a broader rising channel. Given that “the trend is your friend,” the odds favor a reversal break, eventually taking the pair to new highs.

USD/MXN Daily Chart

A close above 19.96 (August 29 high) would likely see a continuation of the bull trend, with the next target at the upper channel line in the 20.60s.