USD/MXN soars to 14-month highs on US tariffs announcement

• Mexico responded to US tariffs by imposing measures on farm and industrial products.
• Mexican peso among worst performers on Thursday, hit 14-month lows versus US Dollar.

The Mexican peso extended losses on Thursday after US Commerce Secretary Wilbur Ross announced that the European Union, Canada, and Mexico would be subject to steel and aluminum tariffs starting on Friday. Ross mentioned that NAFTA negotiations didn't get far enough for Mexico and Canada to avoid tariffs.

A few minutes later, the Mexican government answered imposing duties on US products. "In response to the tariffs imposed by the United States, Mexico will impose equivalent measures to various products like flat steels (hot and cold foil, including coated and various tubes), lamps, legs and shoulders of pork, sausages and food preparations, apples, grapes, blueberries, various cheeses, among others, up to an amount comparable to the level of affectation”, said the government in a prepared statement.

USD/MXN rose from 19.80 to 20.04, reaching the highest level since February 2017. The pair failed to hold above 20.00 and pulled back. During the last hour, it trimmed gains and fell to 19.92. The peso was still down more than 1% against the US dollar and was among the worst performers on Thursday.

Despite being rejected from above 20.00 the bullish pressure still remains intact. Another test of the psychological level seems likely. Volatility is likely to remain elevated on the next sessions, taking into account the new situations with tariffs, its potential impact on NAFTA negotiation, US data (NFP) and EM tensions.

USD/MXN Technical levels

To the upside, the immediate resistance is seen around the 20.00/05 area; a consolidation on top would clear the way to more gains with targets at 20.15 and 20.30. On the flip side support now could be located at 19.90, 19.70 and 19.50.