Mexican Peso gains ground against the US Dollar amid rising geopolitical tensions and upbeat data

• Mexican Peso extends its gains for second straight day, as USD/MXN drops to 18.15 despite the sour market mood.
• Mexico's economic activity exceeded estimates in August, providing a positive backdrop for the Peso.
• US 10-year bond yield pulls back from above 5%, weakening the US Dollar.

Mexican Peso (MXN) strengthens in early North American session against the US Dollar (USD) despite the ongoing escalation of the Israel-Hamas conflict threatening to spread across the region. The 10-year bond yield in the United States (US) surpassed the 5% threshold, though it has retreated, weighing on the US Dollar. The USD/MXN is trading at the 18.10 area, down by 0.7% on the day.

Mexico’s economic calendar revealed that economic activity exceeded estimates in August, according to the National Statistics Agency INEGI. The economy grew above estimates in monthly and annually-based figures. The US 10-year bond yield drop from around 5.02% to 4.86% weighed on the Greenback, opening the door for further USD/MXN losses.

Aside from this, US troops reported attacks in Syria by drones, though no injuries were reported. Geopolitics would likely continue to set the tone in the financial markets.

Daily Digest Market Movers: Mexican Peso fights back, pushing the pair below 18.20

• The Overall Index of Economic Activity in Mexico grew by 0.4% in August, exceeding the estimated 0.3%.
• Annually based, the Mexican economic activity expanded by 3.7%, smashing forecasts of 3.4%.
• Mexico’s August Retail Sales plunged 0.4% MoM, missing estimates of no change, while annually they expanded by 3.2%. This reading was below forecasts of 4.4% and trailed July’s 5.1% growth.
• Earlier this month, data showed 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 gathers momentum while USD/MXN buyers anticipate a pullback

The USD/MXN is upward biased, though the ongoing rally was capped short of testing the latest cycle high, the October 6 peak of 18.48, which gave way to a pullback to current exchange rates below the 18.15 area. The pair could aim toward 18.00 before testing the 20-day Simple Moving Average (SMA) at 17.95. A drop below that level could put the uptrend at risk, as the bulls’ latest line of defense is likely to be the 200-day SMA at 17.73.

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.