The Mexican Peso has largely lacked direction against its US Dollar peer over the last four weeks. USD/MXN price action has carved out a relatively tight trading range as a result, but this sideways trend could soon change with currency volatility likely to accelerate. High-impact event risk facing the Dollar-Peso, which is outlined on the DailyFX Economic Calendar, includes the upcoming release of US inflation data in addition to the Banxico rate decision. These fundamental catalysts stand to weigh notably on the direction of USD/MXN price action.

USD/MXN PRICE CHART: WEEKLY TIME FRAME (01 JUN 2020 TO 11 MAY 2021)

Chart by @RichDvorakFX created using TradingView

USD/MXN might respond positively to higher-than-expected US inflation data and corresponding rise in Treasury yields. This might bring last week’s high around 20.300 into focus for US Dollar bulls, which is also underscored by the 100-day simple moving average. A disappointing print on inflation could send USD/MXN price action recoiling lower, however. Looking to the other side of the equation, the Mexican Peso has potential to strengthen if Banxico stands pat on rates and officials drop hints of another cut coming later this year. This could come on the back of Mexico inflation hitting 6% year-over-year in April.

As such, there could be a scenario where USD/MXN price action plummets to contend with the zone of technical support around 19.500-19.800. Invalidating this support level could subsequently bring 2020 swing lows around 18.500 into focus for USD/MXN bears. Conversely, continued caution by Banxico likely stands to keep Mexican Peso bulls at bay and year-to-date lows intact.