Mexican Peso clings to gains against the US Dollar despite mixed economic signals

• Mexican Peso edges higher as USD/MXN pair tumbles on its way toward the 17.00 figure.
• Mexico's retail sales growth slowed to 2.3% in September, missing forecasts with consumers feeling higher interest rates set by Banxico.
• Mexico’s key economic releases ahead include November inflation data and Q3 GDP.

Mexican Peso (MXN) climbs against the US Dollar (USD) and prints a minuscule daily gain of 0.08%. The USD/MXN pair trimmed some of Tuesday’s gains and trades below the 17.20 area after hitting a daily high of 17.24.

Mexico’s Retail Sales grew by 2.3% YoY in September, slowing down from 3.2% in August and missing estimates of 3.6% expansion. The data begins to evidence the impact of higher interest rates set by the Bank of Mexico (Banxico), currently at 11.25%. Meanwhile, a preliminary data release from the National Statistics Agency (INEGI) showed that economic activity contracted in October, for the first time since June 2022, compared to September.

Ahead in the docket on Thursday, the November mid-month inflation rates are expected to climb in the headline, contrarily to the core, which is foreseen to decline somewhat. On Friday, Mexico will reveal the Gross Domestic Product (GDP) for Q3, which would offer USD/MXN traders fresh impetus ahead of the end of the week.

Daily digest movers: Mexican Peso could weaken as traders await Mexico’s Q3 GDP and economic activity release

• INEGI estimates the economy shrank 0.1% MoM in October, though annually based, it expanded by 2.9%, according to the agency Timely Indicator of Economic Activity (IOAE).
• A Citibanamex poll suggests that 25 of 32 economists polled expect Banxico's first rate cut in the first half of 2024.
• The poll shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, revealed Citibanamex.
• Headline annual inflation is expected at 4% and core at 4.06%, both readings for the next year, while the USD/MXN exchange rate is seen at 19.00, up from 18.95, toward the end of 2024
• The latest US Federal Reserve (Fed) minutes showed the Fed would proceed “cautiously” in setting monetary policy and left the door open to additional tightening if warranted by data.
• US Initial Jobless Claims missed estimates, while Durable Goods Orders plunged sharply, suggesting the economy continues to decelerate.
• Data published last week showed prices paid by consumers and producers in the US dipped, increasing investors' speculations that the Fed’s tightening cycle has ended.
• The swap market suggests traders expect 100 basis points of rate cuts by the Fed in 2024.
• The latest inflation report in Mexico, published on November 9, showed prices grew by 4.26% YoY in October, below forecasts of 4.28% and prior rate of 4.45%. On a monthly basis, inflation came at 0.39%, slightly above the 0.38% consensus and September’s 0.44%.
• Banxico revised its inflation projections from 3.50% to 3.87% for 2024, which remains above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso remains bullish if USD/MXN stays below 17.34

The USD/MXN bearish bias remains intact, and despite forming a ‘tweezers bottom’ two candlestick chart pattern, buyers' failure to lift prices toward the 100-day Simple Moving Average (SMA) at 17.34 opened the door to a pullback. However, if USD/MXN reclaims the latter, further upside is seen, with the next resistance at the 20-day SMA at 17.55, ahead of the 200-day SMA at 17.61.

Nevertheless, the most likely scenario would be the pair dropping toward the November 21 low of 17.06, ahead of sliding toward the 17.00 figure. Once sellers regain that level, the USD/MXN bearish bias would be cemented, and expect another test of the year-to-date (YTD) low of 16.62.