USD/MXN drops below 17.0000 on mixed market sentiment, falling US  yields

• US Existing Home Sales contract by -2.2% in July, with inventory constraints and rising mortgage rates as key drivers.
• Richmond Fed Manufacturing Index meets expectations with a -7 drop, while the Services Index surprises positively at 4.
• Richmond Fed President Barkin suggests solid economic data drives yield movements, hinting at potential further tightening.
• Mexico’s upcoming economic data includes August 1st half inflation, expected to show a decrease.

The Mexican Peso (MXN) registered solid gains on Tuesday, as the USD/MXN pair plummeted below the 17.0000 figure amidst the lack of a catalyst, even though the mood has deteriorated. US Treasury bond yields are almost flat, but the greenback gains ground against most G7 currencies. The USD/MXN is trading at 16.9288, down 0.44%.

Despite a deteriorating mood and gains in the greenback against G7 currencies, the MXN stands firm

Wall Street turned negative as the North American session progressed. Existing Home Sales in the US slumped less than expected, still contracted at a -2.2% pace in July, driven by inventory availability and higher mortgage rates. At the same time, Richmond Fed Manufacturing Index dropped to -7 as estimated, while its Services index posted a positive figure, coming at 4, crushing estimates for a -4 plunge.

The USD/MXN is also falling as US bond yields at the long end of the curve fall. The exception is US 3-month and 2-year Treasuries, yielding 5.30% and 5.02%, respectively. According to recent words from Richmond Fed President Thomas Barkin noted, the move in yields is not a sign of “inappropriate” market tightening; instead, he said is a response to strong economic data.

Barkin added that if inflation stays high and the economy strengthens further, “that would make the case” for additional tightening.

In the meantime, the US Dollar Index (DXY), a gauge of the buck’s value against a basket of six currencies, has risen 0.25%, up at 103.579, but so far failed to gain traction against emerging market currencies.

Aside from this, the Mexican economic docket would feature August 1st half inflation on August 24, which is estimated to decrease to 4.67% YoY and 0.28% on monthly figures. Meanwhile, Mexico’s economy minister Raquel Buenrostro told Reuters, “Mexico rules out modifying a decree on genetically modified (GM) corn ahead of a dispute settlement panel requested by the United States through the USMCA trade pact.”

On the US front, the economic docket would feature Fed speakers, S&P Global PMIs, Durable Good Orders, and New Home Sales.

USD/MXN Price Analysis: Technical outlook

Today, the USD/MXN resumed its downtrend, after standing above the 17.0000 figure for the last 14 days, after clashing with the confluence of the 20 and 50-day Moving Averages (DMAs) at the 17.0000 figure, spurring a fall toward a daily low of 16.8930. Should be said a decisive break below that level, and the pair would challenge the year-to-date (YTD) low of 16.6238. Nevertheless, if USD/MXN reclaims the 17.00 figure, that could pave the way for a test of the 100-DMA at 17.4011.

USD/MXN Price Action – Daily chart