USD/MXN dips on solid Mexican retail sales as the economy continues to grow

• Mexican Retail Sales for June surge to 2.9% MoM, significantly outpacing the anticipated 0.9% growth.
• Preliminary INEGI data indicates a 3.4% growth in Mexico’s economy for July.
• Despite the US’s solid economic performance, the USD/MXN pair retreats, with the DXY index remaining almost flat at 103.353.

The USD/MXN drops below the 17.0500 figure after traveling from weekly highs of 17.2073, preparing to finish the week with modest gains of 0.14%. Usually, risk aversion sees flows toward the Greenback in emerging market currency pairs vs. the former, but not on this occasion. At the time of writing, the USD/MXN is trading at 17.0170, down 0.51%.

Mexican Peso gains traction on robust economic data, while the US maintains a restrictive monetary stance amidst solid retail sales

The Mexican Peso (MXN) recovered some ground after Retail Sales in June exceeded estimates according to the Instituto Nacional de Estadistica Geografia e Informatica (INEGI), with sales coming at 2.9% MoM, above a 0.9% expansion foreseen. Annually basis, sales jumped by 5.9%, crushing estimates of 2.9%. At the same time, a preliminary reading from INEGI showed that Mexican’s economy grew 3.4% in July.

It should be said the Bank of Mexico (Banxico), the Mexican central bank, has kept rates on hold during the last two meetings and is expected to keep them around 11.25% in the foreseeable future. Meanwhile, the swaps markets speculate Banxico would cut rates by the end of 2023.

Across the border, the US economic agenda revealed solid data during the week, led by retail sales pushing above forecasts and a robust labor market justifying the Federal Reserve’s (Fed) need to maintain its restrictive stance regarding monetary policy. The Fed’s latest monetary policy meeting minutes emphasized the US central bank commitment to bring inflation towards its 2% target, though some officials began to be cautious about upcoming meetings.

In the meantime, the US Dollar Index (DXY), a gauge of the buck’s value against a basket of six peers, hovered around two-month highs but retraced to 103.353, almost flat. The US Treasury bond yields pare some of its losses, with the US 10-year Treasury note yielding 4.255%, down two bps.

USD/MXN Price Analysis: Technical outlook

The USD/MXN bias remains downwards but it appears to have bottomed at around 17.0000. A daily close below the latter would expose the year-to-date (YTD) low of 16.6238, followed by the October 2015 swing low of 16.3267. Contrarily, if USD/MXN remains above 17.0000, the 20-day Moving Average (DMA) at 17.0189 would be up for grabs.