- Mexican Peso gains 0.55%, trading at 17.92, after better-than-expected Economic Activity data.
- INEGI reports strong economic activity for May, offsetting slow retail sales growth.
- US political developments with Biden's withdrawal and endorsement of Harris impact market sentiment, favoring high-beta currencies.
The Mexican Peso recovered on Monday after ending the week with more than 2.30% losses. Mexico’s economic data was mixed, though the Economic Activity indicator, which measures growth, was better than expected and bolstered the Mexican currency. Therefore, the USD/MXN drops below the 18.00 figure and trades with gains of 0.55% at around 17.92.
The Mexican National Statistics Agency (INEGI) revealed that economic activity in May exceeded estimates and April's data on a monthly and annual basis. This helped the Peso, which remains appreciating against the US Dollar. Contrarily, Retail Sales for the same period increased slowly, hinting that Government infrastructure projects drive the economy.
Across the border, breaking news emerged on Sunday that US President Joe Biden dropped from the Presidential race and endorsed the current Vice President Kamala Harris to obtain the ticket of the Democrats and compete against former President Donald Trump.
After that, US equity futures opened higher during the Asian session, while Wall Street traded in the green. This undermined the Greenback and favored high-beta currencies like the Mexican Peso.
Last week, Trump’s comments put Mexico in the spotlight, commenting that he will end illegal immigration “by closing the border and completing the wall.” He added, “China and Mexico have taken 68 percent of our automotive industry, but we are going to get it back.”
The remarks threaten to prevent companies from relocating to Mexico, which could weaken the Mexican Peso.
The US Dollar Index (DXY), which tracks the buck’s value against the other six currencies, stays virtually unchanged at around 104.30.
Daily digest market movers: Mexican Peso recovers some ground
- Mexico’s Economic Activity in May increased by 0.7%, exceeding April’s -0.6% MoM contraction. On an annual basis, it slowed from 5.4% to 1.6%.
- May Retail Sales were worse than April’s, rising 0.1% MoM, trailing a 0.5% increase, and 0.3% YoY, down from 3.2%.
- The International Monetary Fund (IMF) adjusted Mexico’s Gross Domestic Product (GDP) expectations for 2024 from 2.4% to 2.2% due to the country’s economic slowdown and the US economic downturn.
- Fitch Ratings reaffirmed Mexico’s BBB- rating with a stable outlook but noted that the proposed judicial reform could impact the country. The credit rating agency expressed uncertainty about the upcoming administration's ability to narrow the fiscal deficit, anticipated a slight economic downturn in 2025, and mentioned that trade tensions with the US could leave Mexico vulnerable.
- The CME FedWatch Tools show that the chances of a quarter-percentage-rate cut to the federal funds rate in September are at 94%.
- June consumer inflation figures were lower than expected in the United States, increasing the chances that the Federal Reserve would lower borrowing costs in 2024 by at least 48 basis points, according to the December 2024 fed funds rate futures contract.
Technical analysis: Mexican Peso surges as USD/MXN slumps below 18.00
The USD/MXN retreated beneath 18.00; it seems to be poised to edge lower and test key support levels, the 50-day Simple Moving Average (SMA) at 17.72, the first support level.
Momentum shifted bearishly, as depicted by the Relative Strength Index (RSI), though it meanders around the 50-neutral line. That said, in the short term, the USD/MXN could be headed for a correction before resuming upwards.
If USD/MXN drops below the 50-day SMA, the next support would be the latest cycle low of 17.58; the July 12 high turned support. A breach of the latter will expose the January 23 peak at 17.38.
If USD/MXN extends its gains above the psychological 18.00 figure, that will expose key resistance levels. Once breached, the next stop would be the July 5 high at 18.19, followed by the June 28 high of 18.59, allowing buyers to aim for the YTD high at 18.99.
Economic Indicator
Retail Sales (YoY)
The Retail Sales released by INEGI measures the total receipts of retail stores. Monthly percent changes reflect the rate of changes of such sales. Changes in retail sales are widely followed as an indicator of consumer spending. 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.
Read more.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Next stop emerges at 0.6580
The downward bias around AUD/USD remained unabated for yet another day, motivating spot to flirt with the area of four-week lows well south of the key 0.6700 region.
EUR/USD looks cautious near 1.0900 ahead of key data
The humble advance in EUR/USD was enough to partially leave behind two consecutive sessions of marked losses, although a convincing surpass of the 1.0900 barrier was still elusive.
Gold extends slide below $2,400
Gold stays under persistent bearish pressure after breaking below the key $2,400 level and trades at its lowest level in over a week below $2,390. In the absence of fundamental drivers, technical developments seem to be causing XAU/USD to stretch lower.
Why this week could be explosive for Ethereum
Ethereum (ETH) is down nearly 1% on Monday as exchanges have begun confirming Tuesday as the launch date for ETH ETFs. Considering the ETH ETF launch and the upcoming Bitcoin Conference, this week could prove crucial for Ethereum.
What now for the Democrats?
Like many, I applaud Biden’s decision. I would have preferred that he’d made it sooner, but there’s still plenty of time for the Democrats to run a successful campaign. In fact, I wish something on the order of a two-month campaign – as opposed to a two-year campaign – were the norm and not the exception.