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The Mexican peso's recent surge against the US dollar took a breather today with the USD/MXN pair ticking up to 17.18, despite a general weakness in the dollar across Forex markets. Investors are closely watching Mexico's economic indicators, such as retail sales and mid-November inflation data, which are expected to influence the Bank of Mexico's (Banxico) interest rate decisions.
Today, the market is also awaiting the Federal Reserve's meeting minutes, which could sway market sentiment. This comes in the wake of US Existing Home Sales experiencing their most significant decline since November 2022.
Despite the broader softness of the dollar, as evidenced by the Dollar Index (DXY) standing at 103.28 and Treasury yields decreasing to 4.39%, technical analysis suggests bearish signals for USD/MXN. The pair is trading under key Simple Moving Averages (SMAs), coupled with a 'bullish engulfing' pattern that might indicate an upward movement ahead.
Looking ahead to Friday, traders are speculating on potential shifts in Fed policy following subdued US price growth readings, while Mexico is set to release its GDP data for the third quarter and current account figures. Market swaps hint at possible rate cuts in 2024.
Mexico's October inflation report came in below expectations at 4.26% year-over-year, leading Banxico to adjust its inflation forecast for 2024 closer to target levels at 3.87%. This adjustment comes amid nearshoring trends that have been bolstering prospects for the Mexican peso.
From a technical standpoint, resistance levels for USD/MXN are being watched around SMA benchmarks. Breaking through or dropping below critical points like 17.28 could propel the pair toward new tests or bring it back down to revisit yearly lows near the year-to-date low of 16.62, as anticipations from the swap market play into currency valuations.
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