Mexican Peso edges higher as lawmakers prepare to debate constitutional reforms

• The Mexican Peso trades slightly higher in its key pairs but remains in a firm downtrend overall. 
• The passage of constitutional reforms as they are debated might provide volatility for MXN going forward. 
• USD/MXN pauses within an uptrend inside a rising channel.  

The Mexican Peso (MXN) trades marginally higher in its key pairs on Tuesday during the European session as a mood of calm pervades markets, which mildly benefits the risk-on Peso. Despite the temporary uplift, MXN's overall trend remains down and looks likely to continue.

Mexican Peso traders eye possible volatility from constitutional reforms

Mexican Peso traders will be eyeing the passage of a controversial set of reforms to the constitution, involving the way judges are elected, which are scheduled to be debated in Mexico's Congress on Tuesday and Wednesday, according to Reuters. Concerns around these reforms have weighed on financial markets in the past, and similar weakness is expected if they are eventually voted through and implemented. 

Mexico's Morena-led Government has more than the two-thirds majority in the lower house, which should enable them to vote the proposed reforms through. However, they are a vote short of a majority in the Senate, so there remains some uncertainty about whether they will pass into law immediately. 

The reforms have been heavily criticized for undermining the rule of law and democracy although their defenders argue they will help fight the influence the criminal cartels have over the justice system. From a financial perspective, they run the risk of leading to a decline in foreign investment. This, in turn, would reduce demand for the Peso, leading to a further depreciation of the currency. 

On the economic data front, the Mexican Jobless Rate for July and Gross Fixed Investment for June are scheduled for release on Tuesday. 

Recent Mexican macro data has been mixed, with the S&P Global Mexico Manufacturing Purchasing Managers Index (PMI) falling to 48.5 in August from 49.6 in July, and marking its lowest level in two years. Business Confidence, however, rose by 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 consolidates within uptrend

USD/MXN pauses within an uptrend inside a broader rising channel. Given that "the trend is your friend", the odds favor an upside break, eventually taking the pair to new highs. 

USD/MXN Daily Chart 

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