USD/MXN ascends amid anticipation of US inflation data

USD/MXN bounces off weekly lows of 17.0285 and climbs despite broad US Dollar (USD) weakness across the board on a light economic docket on both sides of the border between the United States (US) and Mexico. At the time of writing, the USD/MXN is trading at 17.0929, after hitting a daily low of 17.0330, gaining 0.20%.

Greenback resilient against the Mexican Peso, despite market optimism

Investors’ mood remains positive ahead of the important US inflation report on Wednesday. The Consumer Price Index (CPI) for June is expected to decelerate from 4% to 3.1% in yearly figures, while month-over-month (MoM) is seen at 0.3%, higher than May’s 0.1%. The core CPI for the same period, which excludes volatile items like food and energy, is estimated to dip to 5% YoY from 5.3% in the last month. In comparison, MoM data is estimated at 0.3%, a downtick from the latest 0.4% readings during the previous two months.

In the meantime, Federal Reserve (Fed) speakers remain tilted hawkish, as the Vice Chairman for Supervision Michal Barr said there’s some work to do, while Cleveland’s Fed President Loretta Mester added that  “rates would need to move up somewhat further.” At the same time, San Francisco’s Fed President Mary Daly stated that “a couple of more rate hikes over the course of this year” are needed while emphasizing the risks of doing too little are higher than doing too much. Contrarily, Atlanta’s Fed President Raphael Bostic leaned dovish, saying that rates are already in the restrictive territory and that inflation would reach its 2% target.

As of writing, US Treasury bond yields in the short-end of the curve are almost unchanged, while the belly and long-end are dropping, undermining the Greenback. The US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, slides 0.10%, at 101.792, falling to a new two-month low of 101.666.

On the Mexican front, an absent economic docket will leave traders adrift to US Dollar dynamics and Wednesday’s CPI data. Hot inflation in the US could be positive for the Greenback and lift the USD/MXN to re-test the 17.4038 May 17 low-turned resistance. Once that level is breached, the USD/MXN could turn neutral. Factors that could undermine the Mexican Peso (MXN) is a reduction of the interest rate differential, with the Bank of Mexico (Banxico) expected to begin easing monetary policy towards the end of the year, while the Fed has signaled to keep rates “higher for longer.”

USD/MXN Price Analysis: Technical outlook

The USD/MXN daily chart still portrays the pair as downward biased but appear to have bottomed at around 17.00 in the near term. On July 6, the USD/MXN posted a gain of 1.35%, forming a bullish engulfing candle that embraced the price action of the prior nine days, suggesting that the USD/MXN consolidation around the 16.9761-17.40 range could be seen as a sign of MXN bulls booking profits, ahead the Banxico’s shift. To the upside, USD/MXN key resistance areas are the 20-day Exponential Moving Average (EMA), at 17.1575, followed by the May 17 daily low-turned resistance at 17.4038. Conversely, support areas lie at 17.0000, followed by the year-to-date (YTD) low of 16.9761.