The Mexican Peso experienced a sharp decline during Tuesday’s North American session, falling over 1.00% against the US Dollar, which registered modest gains amid declining US Treasury bond yields. Market participants are keenly awaiting Mexico’s mid-month inflation figures, due on Wednesday, alongside US GDP and inflation data, as these could significantly impact the Mexican currency’s trajectory. USD/MXN is currently trading at 18.12 after rebounding from daily lows of 17.90.
Several factors have contributed to the Peso’s weakness:
- Mexico’s Economic Slowdown: The Economic Activity Indicator for May, released by INEGI, showed a further deceleration in the Mexican economy. Disappointing retail sales data for the same period added to the gloomy economic outlook.
- Judiciary Reform Concerns: The Mexican Congress is set to discuss President Lopez Obrador’s proposed judiciary reform, raising concerns about its potential impact on the country’s stability.
- Rate Cut Expectations: A Citi Research Expectations survey revealed that economists unanimously anticipate a 25-basis point rate cut by the Bank of Mexico (Banxico) in August. Additionally, the consensus has revised the USD/MXN exchange rate forecast upwards for the end of the year.
Meanwhile, the US Dollar has strengthened due to growing speculation of Donald Trump’s potential victory in the upcoming presidential elections and expectations of a September rate cut by the Federal Reserve. The US economic docket will also feature the release of crucial GDP data this week.
Technical Analysis:
USD/MXN has reclaimed the 18.00 level and seems poised for further gains after forming a ‘shooting star’ bearish candle. If sellers fail to cap prices below 18.00, the pair could retest the June 28 peak at 18.59. However, several resistance levels lie in between, including 18.50 and the year-to-date high at 18.99.
Conversely, a retreat below 18.00 could lead to a challenge of the 50-day Simple Moving Average (SMA) at 17.74, followed by the recent cycle low of 17.58. A break below this level would expose the January 23 peak at 17.38.
