USD/MXN defies gravity, rises from 7-year low as global economic uncertainty simmers

• USD/MXN ends a six-day losing streak, jumps 0.54%, driven by a risk-off market amid weak Chinese GDP and Retail Sales data.
• Despite Wall Street’s positive opening, concerns over China’s economic slowdown overshadow optimism; awaits key US and Mexico retail sales data.
• Potential rate cut by the Bank of Mexico in December 2023, coupled with the US Federal Reserve’s upcoming policy meeting, adds uncertainty to the USD/MXN.

USD/MXN snaps six days of losses and climbs from around 7-year lows reached at 16.7062, amid a light economic calendar in Mexico and the United States (US) and a risk-off environment. Weak data from China, namely Gross Domestic Product (GDP) for Q2 and Retail Sales, spurred fears for a global economic slowdown. The USD/MXN is trading at 16.8247, up 0.54%.

China’s economic deceleration and upcoming US data weighed on the Mexican Peso

Wall Street opened in the green, though it failed to underpin the USD/MXN pair. Data during the Asian session showed that China’s GDP grew 0.8% QoQ, beneath the first quarter (Q1) 2.2%, while on an annual basis, the economy expanded at a 6.3% pace, below 7.1% estimates, but exceeded Q1’s 4.5%. In the meantime, Industrial Production exceeded forecasts, while Retail Sales decelerated sharply from 12.7% in May to 3.1% in June.

Aside from this, the upcoming economic docket in the US will witness the release of Retail Sales on Tuesday, which are expected to rise by 0.5%, above the prior month’s 0.3%. Although the latest Nonfarm Payrolls report disappointed the markets and inflation numbers flash a disinflation process, the latest University of Michigan (UoM) Consumer Sentiment report could be a prelude to a positive retail sales report.

The same day, the US Federal Reserve (Fed), whose speakers entered the blackout period ahead of the upcoming monetary policy meeting on July 25-26, will unveil US Industrial production, estimated at 0% MoM, below May 0.2% expansion.

On the Mexican front, the calendar will reveal Retail Sales until Thursday, estimated at 3.5% YoY, below April’s 3.8%. Softer-than-expected readings could show that the economy would need lower interest rates, as the Bank of Mexico (Banxico) raised more than 700 basis points, keeping the TIIE at around 11.25%. It should be said; the disinflationary process is gathering pace, putting on the table, Banxico’s first rate cut by December 2023.

USD/MXN Price Analysis: Technical outlook

From a technical standpoint, the USD/MXN is set to continue its downtrend, but a correction is on the cards. If USD/MXN reclaims the July 14 daily open at 16.9172, that could form a bullish engulfing candlestick pattern that can lift the pair toward the 20-day Exponential Moving Average (EMA) at 17.0431. Nevertheless, the latter’s confluence with the 2016 yearly low would be difficult resistance to surpass, and if it happens, that could pave the way to retesting May 17 daily low turned resistance at 17.4038. Otherwise, if resistance holds at 17.0000, the USD/MXN could retest the yearly lows, followed by the October 2015 low at 16.3267