Mexican Peso recovers ground against US Dollar despite Mexico’s weaker Retail Sales, risk-off impulse

• Mexican Peso exchange rate with the US Dollar remains on the defensive, printing more than 1% weekly losses.
• August Retail Sales in Mexico show a mixed picture, with gains over the year but a monthly plunge and signs of deceleration.
• Geopolitical risks cap Peso's gains, including tensions in the Middle East and US military base attacks.

Mexican Peso (MXN) registers solid gains against the US Dollar (USD) at the end of the week, though it remains printing weekly losses of more than 1%, as risk-aversion took its toll against risk-perceived currencies in the Forex markets. On Friday, the USD/MXN was trading at around 18.24, down 0.40%, although Retail Sales from Mexico showed the economy has been hit by higher interest rates set by the Bank of Mexico (Banxico).

Mexico’s National Statistic Agency, known as INEGI, revealed August Retail Sales plunged on monthly figures but expanded on a yearly basis, though showing signs of a deceleration. Comments made by the US Federal Reserve (Fed) Chair Jerome Powell, however, on Thursday suggest the US central bank might keep rates unchanged at the upcoming November meeting, keeping the door open for December’s meeting. The overall effect of Powell’s speech was some short-term weakness for the Dollar.

In the meantime, geopolitical risks remain high as Israel continues its offensive against Hamas. At the same time, the United States (US) said its military bases in Iraq and Syria are increasingly coming under attack.

Daily Digest Market Movers: Mexican Peso counterattacks as the pair drops below 18.30

• Mexico’s August Retail Sales plunged -0.4% MoM, missing estimates of 0%, while annually expanding by 3.2%. This was below forecasts of 4.4% and trailed July’s 5.1%.
• IOAE portrays the Mexican economy growing at a 3.12% YoY pace.
• US Initial Jobless Claims for the week ending October 14 rose by 198K, below estimates and previous week data, each at 212K and 211K, respectively.
• US Existing Home Sales rose by 3.96M in September, below August’s 4.04M, a -2% contraction.
• US Building Permits plummeted -4.4% in September, compared to last month’s 6.8% increase.
• Housing Starts for the same period previously mentioned rose by 7%, exceeding August’s -12.5% drop.
• Mexico’s GDP in 2023 is expected to hit 3.2%, according to the World Bank and the International Monetary Fund.
• 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.
• 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 6.00% threshold.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso strengthens, as USD/MXN buyers eye a pullback before next leg-up

The USD/MXN is upward biased, though the ongoing rally was capped short of testing the latest cycle high, the October 6 high, of 18.48, which opens the door for a pullback.

The exotic pair could drop toward 18.00 before testing the 20-day Simple Moving Average (SMA) at 17.91. A drop below that could put at risk the uptrend, as the bull’s latest line of defense is likely to be the 200-day SMA at 17.74.

On the other hand, if the pair aims higher and buyers reclaim 18.48, that would put the 18.50 figure into play, followed by the 19.00 mark.