USD/MXN dips to a seven-year low below 17.00 as US manufacturing slows down

• The USD/MXN pair slides to a seven-year low on disappointing US manufacturing data and a weakened USD.
• Mexican economy indicators show mixed signs, with a slight fall in Gross Fixed Investment but a rise in Consumer Confidence.
• Upcoming US labor data, Banxico’s meeting minutes, and Mexican inflation data could significantly impact the USD/MXN movement.

The USD/MXN falls in the North American session reached a new seven-year low of 16.9761 after data from the United States (US) accentuated an ongoing slowdown in manufacturing as orders missed estimates. That, alongside a weak US Dollar (USD) and interest rate differential between the US and Mexico, boosted the Mexican Peso (MXN). At the time of writing, the USD/MXN exchanges hands at 16.9874, slides 0.43%.

Amid disappointing US economic data, interest rate differential benefits the Mexican Peso

US equities remain pressured, as the US Census Bureau showed that Factory Orders in May, failed to grow at the 0.8% pace expected, expanded by 0.3%, unchanged compared to April, while orders that exclude transportation plummeted -0.5%, below the 0.5% growth estimates by the consensus.

The USD/MXN dived before the US Factory Orders release, from around 17.0219, toward its new year-to-date (YTD) low of 17.9761. However, the pair has recovered some ground, hoovers nearby the 17.00 figure.

Today’s data showed that Factory Orders remain unchanged, and weaker readings on the ISM Manufacturing PMI in the last eight months show the US economy could be at the brisk of getting into a recession. Nonetheless, additional data ahead in the current and the following week could give more cues about the US economy’s status.

Aside from this, speculators see the Fed lifting rates In July, as shown by the CME FedWatch Tool. Chances for a 25 bps increase are at 88.7%, while the swaps market sees the Federal Funds Rates (FFR) peaking at 5.25%-5.50%.

Across the border, the Mexican economic docket revealed that Gross Fixed Investment in April fell -0.3% MoM, beneath March’s 0.5% growth. At the same time, Consumer Confidence for June rose by 45.2, above the 44.3 consensus and exceeding the previous month’s 44.5.

Upcoming events

The US agenda will deliver labor market data, the Balance of Trade on Thursday, and the ISM Services PMI. On Friday, the US Nonfarm Payrolls report could dictate what the Fed could do at the next monetary policy meeting. On the Mexican front, the Bank of Mexico (Banxico) will release its last meeting minutes on Thursday, followed by inflation data on Friday.

USD/MXN Price Analysis: Technical outlook

The USD/MXN downtrend is set to continue as the pair is trading well beneath its daily Exponential Moving Averages (EMAs). The Relative Strength Index (RSI) indicator remains in bearish territory, while the three-day Rate of Change (RoC) shows sellers are in charge. That said, the USD/MXN needs to achieve a daily close below 17.00. In that outcome, the next support would be the 16.50 psychological figure, followed by the October 2015 daily low of 16.3267, before testing the 16.00 mark. Conversely, the USD/MXN first resistance is the 20-day EMA at 17.1772, followed by the May 17 daily low-turned resistance at 17.4038.