USD/MXN extends bounce off 35-month low amid recession woes, softer yields

• USD/MXN picks up bids to renew intraday high, defends two-day gains.
• US Dollar remains pressured as softer US data fails to support hawkish Fed talks.
• Mexican Peso is among the top Emerging Market performers as commodity prices surge.

USD/MXN reveres intraday losses to 18.95 heading into Thursday’s European session as Mexican Peso consolidates recent gains around the multi-month low.

The resource-rich Latin America (LATAM) cheers softer US Dollar, as well as higher commodity prices to exert downside pressure on the USD/MXN prices. That said, the quote’s downside move also takes clues from the softer US Treasury yields and fears of US recession, mainly due to the downside US data. However, consolidation of the recent losses ahead of Friday's Mexican Retail Sales seem to have triggered the latest corrective bounce.

While checking the details the US Retail Sales marked the biggest slump in a year while the Producer Price Index also dropped to the lowest level in six months during December.

Alternatively, St. Louis Federal Reserve's President James Bullard said US interest rates have to rise further to ensure that inflationary pressures recede. On the same line, President of the Federal Reserve Bank of Cleveland Loretta Mester praised the Fed’s actions to tame inflation. Further, Kansas City Fed President Esther George mentioned that the central bank must restore price stability, "that means returning to 2% inflation." Recently, Dallas Federal Reserve President Lorie Logan supported a slower rate hike pace but also mentioned possibly a higher stopping point.

Elsewhere, the US 10-year Treasury yields refresh a four-month low whereas the two-year counterpart drops to the lowest levels since early October at the latest.

Against this backdrop, the S&P 500 Futures print mild losses by the press time, while tracking Wall Street’s close.

Looking forward, Friday’s Mexican Retail Sales could direct USD/MXN moves amid a light calendar before that. However, the risk catalysts and yields will be crucial to watch for clear directions.

Technical analysis

The downside break of the previous key support line from July 2017, now resistance around 19.73, keeps USD/MXN bears hopeful. Meanwhile, the pair buyers need validation from 61.8% Fibonacci retracement level of the pair’s run-up from July 2017 to April 2020, close to 20.65, to retake control.