Mexican Peso Rises Sharply Ahead of Mexico Inflation Report

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Mexican Peso Rises Sharply Ahead of Mexico Inflation Report

  • The Mexican peso is gaining, with USD/MXN falling below 18.00 to its lowest level since June 25.
  • June’s CPI report, consumer confidence and industrial production shape Mexico’s economic outlook.
  • Banxico meeting minutes are likely to signal patience on rate cuts amid stable inflation expectations.

The Mexican peso rose sharply against the U.S. dollar as USD/MXN fell below the psychological value of 18.00 on Monday, a level last seen on June 25. That signaled that peso buyers remained engaged in a so-called “carry trade” that supported the Mexican currency, with the exotic pair exchanging at 17.99, down 0.45%.

Mexico’s economic calendar will be of interest to traders. The focus is on the June Consumer Price Index (CPI) report, which will be released on July 9. Further data will be released, such as Consumer Confidence and Industrial Production, which will dictate the economic trend and tardy it down, according to analysts.

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The Bank of Mexico (Banxico) will release the latest minutes of its monetary policy meeting on Thursday, which are likely to show the central bank will remain patient as it cuts borrowing costs.

Across the border, the New York Federal Reserve revealed that consumer inflation expectations have been lowered from 3.2% to 3% for one year. Beyond that, market players will be focused on Federal Reserve (Fed) Chairman Jerome Powell’s speech to the US Congress on Tuesday and Wednesday, and the release of inflation data for June.

Last week’s U.S. employment data raised speculation that the Fed could ease policy in September, according to CME FedWatch Tool data. The odds of a cut in September are 73%, up from 71% last Friday.

Daily Market Factors Review: Mexican Peso Continues to Rise Despite Strong US Dollar

  • A Banxico survey showed economists estimate that gross domestic product (GDP) will end the year at 2%, down from 2.1%. They expect Banxico to cut interest rates from 11.00% to 10.25%, down from the 10.00% forecast in May.
  • Some analysts in Mexico estimate that the economy could tardy but avoid a recession, according to the National Statistics Agency’s (INEGI) Coincident Indicator. Still, they said reforms pushed by President Andres Manuel Lopez Obrador (AMLO), particularly judicial reform, could affect the country’s creditworthiness.
  • Mexico’s CPI is expected to rise from 4.69% year-on-year to 4.84% in June, while the core CPI is expected to fall from 4.21% to 4.15% year-on-year.
  • US CPI is forecast to fall from 3.3% to 3.1% in the 12 months to June, while core inflation is expected to hold steady at 3.4% year-on-year.
  • The U.S. Dollar Index (DXY), which tracks the value of a basket of six currencies against the U.S. dollar, was steady at 104.94, up 0.06%.

Technical Analysis: Mexican Peso Holds Near Weekly Highs, USD/MXN Hovers Around 18.00

USD/MXN hit a nine-day low of 17.97, although some offers below the 18.00 level lifted the pair above the latter. The Greenback remains faint against the peso. Momentum has shifted in favor of sellers, with the Relative Strength Index (RSI) set to fall below the neutral 50 line.

If USD/MXN closes below 18.00, the next support will be the June 24th swing low at 17.87. Further losses will come below the 50-day basic moving average (SMA) at 17.56 and then the 200-day SMA at 17.26. The next level will be the 100-day SMA at 17.17.

For a bullish recovery to occur, USD/MXN needs to break above 18.10 and then rally above the June 28 high at 18.59, which would allow buyers to challenge the yearly high at 18.99. Sellers, on the other hand, need a break below 18.00, which could extend the pair’s decline toward the December 5 high, which became support at 17.56 and then the 50-day basic moving average (SMA) at 17.37.

Economic indicator

12 month inflation

The 12-month inflation rate published by Bank of Mexico is a measure of price movements by comparing the retail prices of a representative shopping basket of goods and services. The purchasing power of the Mexican peso is reduced by inflation. The inflation rate is a key indicator because it is used by the central bank to set interest rates. Generally speaking, a high reading is seen as positive (or bullish) for the Mexican peso, while a low reading is seen as negative (or bearish).

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