USD/MXN fades bounce off multi-month low ahead of Mexican inflation, US debt ceiling negotiations

• USD/MXN struggles to defend the previous day’s rebound from the lowest levels since September 2017.
• Cautious markets ahead of the key debt-ceiling talks, US and Mexican inflation prod pair buyers.
• Fears of US, unimpressive Fed bank survey keeps Mexican Peso bulls hopeful.

USD/MXN remains sluggish around 17.80 as it barely defends the previous day’s corrective bounce off the lowest levels since September 2017 amid mixed sentiment during early Tuesday in Europe.

Global markets have been dicey of late as uninspiring details of the Fed bank loan survey details joined looming fears of the US default. The US Dollar, however, fails to benefit from the downbeat sentiment as yields dribble after the three-day uptrend whereas the US data has been mixed of late.

Above all, the divergence in monetary policy bias between the US Federal Reserve (Fed) and Banxico keeps the USD/MXN bears hopeful. Recently, Chicago Federal Reserve Bank President Austan Goolsbee appeared less hawkish while highlighting the data dependency. The same prods the US Dollar bulls after Friday’s mixed US NFP details even as the US inflation expectations have been firmer of late.

That said, US Treasury Secretary Janet Yellen raised fears of the US defaults "catastrophic" impact and exerted more pressure on the policymakers as US President Joe Biden braces to confront Republican House Speaker Kevin McCarthy, Republican Senate Minority Leader Mitch McConnell and top congressional Democrats at the White House on Tuesday.

Against this backdrop, S&P 500 Futures remain indecisive near 4,150 while the US Treasury bond yields prod a three-day winning streak.

Looking forward, Mexico’s 12-month Inflation, Core Inflation and Headline Inflation for April can offer immediate directions to the USD/MXN pair. That said, downbeat expectations may allow the Mexican Peso (MXN) pair to extend Monday’s recovery. However, major attention will be given to the US debt-ceiling talks ahead of Wednesday’s Consumer Price Index (CPI).

Given the wide differences among the US policymakers on the issue, as well as disappointment from the US NFP, the likely indecision and burden on the US Dollar can’t be ruled out.

Technical analysis

Unless providing a daily close beyond a two-month-old previous support line, now resistance around 17.95, the USD/MXN bulls remain off the table.