Mexican Peso trims gains on high US bond yields, strong US Retail Sales

• Mexican Peso is on the defensive, as the USD/MXN trades at around 17.90.
• Mexico’s economic calendar is light, with August’s Retail Sales awaited on Friday.
• Robust US Retail Sales and Industrial output lift US Dollar amid Fed Rate hike speculation.

Mexican Peso (MXN) is trimming some of its Monday gains against the US Dollar (USD) after a tranche of economic data from the United States (US) spurred a jump in US Treasury bond yields, which lifted the Dollar. Therefore, the USD/MXN reclaimed the psychological 18.00 figure, though it has retreated and hovers around 17.91, still posting gains of 0.25%.

The economic docket in Mexico is empty, except for August’s Retail Sales data on Friday, with estimates for a monthly basis at 0%, while annual figures are foreseen at 4.4%. Across the border, Retail Sales in September crushed estimates, and August numbers were upward revised, which could potentially influence US Federal Reserve (Fed) officials to reassess their current stance. Recently, Industrial Production exceeded last month’s figures and was unchanged annually.

Regarding geopolitical developments, which could sour market sentiment, US President Joe Biden is traveling to Israel to support the country and will meet with Israel Prime Minister Benjamin Netanyahu and Arab leaders.

Daily Digest Market Movers: Mexican Peso at the brisk of depreciating towards 18.00

• US Retail Sales in September grew by 0.7% MoM, above forecasts of 0.3%, but trailed upward revised August of 0.8%.
• Industrial Production rose 0.3% MoM, better than expected, and the previous month's 0.0% reading.
• Mexico’s 2023 GDP is expected to hit 3.2%, according to the World Bank and the International Monetary Fund.
• New York Fed Empire State Manufacturing Index for October plunged to -4.6, higher than forecasts of -7 but worse than September’s 1.9 expansion.
• Philadelphia Fed President Patrick Harker commented the current level of rates kept house buyers on the sideline, highlighting that the Fed is likely done hiking rates.
• Chicago Fed President Austan Goolsbee said the fall in US inflation is not a bleep, according to the Financial Times.
• Inflation expectations for one year rose from 3.2% to 3.8%, while for five years jumped to 3% from 2.8%.
• Mexico's Industrial Production (IP) for August improved by 5.2% YoY, exceeding forecasts of 4.6% and July’s 4.8% increase.
• Monthly, IP in Mexico rose 0.3% as expected but trailed the previous 0.5% reading.
• The US Consumer Price Index increased 3.7% YoY in September, unchanged from August but above forecasts of 3.6%.
• US core CPI dipped as expected to 4.1% from 4.3% in August.
• Mexico’s Consumer Price Index (CPI) grew by 4.45% YoY in September, slightly below the 4.47% estimated.
• The core CPI inflation in Mexico stood at a stickier 5.76% YoY, as widely estimated, but has broken below the 6% threshold.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.5% to 3.87% for 2024, above the central bank’s 3% target (plus or minus 1%).

Technical Analysis: Mexican Peso drops as technical signs support a USD/MXN bullish bias

The Mexican Peso is trimming some of its Monday gains, but it remains below the 18.00 figure, maintaining its upward bias, unless the USD/MXN drops below the 200-day Simple Moving Average (SMA) at 17.75. In that case, the exotic pair could aim towards 17.50, followed by the 50-day SMA at 17.35. Contrarily, if the pair could re-test the 18.00 figure, which once broke, the pair could rally and test 18.20. Next resistance would be the October 6 high of 18.48.