Mexican Peso rallies to snap four-day losing streak

• Mexican Peso gains over 2%, trading at 19.18, ending a four-day decline against the Greenback.
• Mexico's economic data shows slowdown in automobile production and exports; traders focus on Thursday's inflation data and Banxico policy decision.
• Reuters poll: 12 of 22 economists expect Banxico to hold rates steady, while 10 anticipate a 25 bps cut.
• Rabobank predicts Banxico will cut rates by 25 bps, with 50 bps of easing expected by year-end.

The Mexican Peso enjoys a healthy rally on Wednesday and snapped a four-day losing streak against the Greenback following Monday’s stock market massacre. Market players cheered words from Bank of Japan’s Deputy Governor Uchida, who said the BoJ would not raise rates if markets were unstable. This boosted the emerging market currency, which would be pressured as Thursday’s docket will be busy. The USD/MXN trades at 19.18 and plunges over 2%.

Sentiment improved after Uchida’s words, as reflected by Wall Street's rise between 0.65% and 1.62%. The US Dollar Index (DXY), which measures the buck’s performance against six currencies, edged higher by 0.26% to 103.19.

Mexico’s economic docket featured Automobile Production and Exports figures on Tuesday, with data showing a slowdown in both readings. Traders shrugged off the data, yet are preparing for Thursday’s docket, which will feature July inflation data and the Bank of Mexico (Banxico) monetary policy decision.

Regarding the latter, a Reuters poll showed that 12 of 22 economists expect the Bank of Mexico to hold rates unchanged, while 10 others expect a 25-basis-point (bps) rate cut.

Analysts at Rabobank expect Banxico to lower rates by 25 bps on a 3-2 split vote and expect 50 bps of easing between now and year-end.

In the US, investors continued to price in over 100 bps of cuts by the US Federal Reserve (Fed) via the Chicago Board of Trade (CBOT) December fed funds rate futures contract. Despite that, US Treasury yields are recovering some ground, with the 10-year benchmark note rate up three and a half bps to 3.932%.

Daily digest market movers: Mexican Peso counterattacks, ahead of crucial data

• Mexico’s inflation is expected to aim up from 4.98% to 5.57% YoY, while monthly figures are expected to jump from 0.38% to 1.02% MoM.
• Core inflation is foreseen dipping from 4.13% to 4.02% YoY and rising from 0.22% to 0.29% MoM.
• On Friday, Mexico’s Industrial Production is expected to dip, which could put Banxico at a crossroads as headline inflation rises, while the economy stagnates
• Monday’s ISM Services PMI improvement from July faded fears that the US economy might hit a hard landing instead of a soft landing.
• The CME FedWatch Tool shows the odds of a 50-basis-point interest rate cut by the Fed at the September meeting at 63.5%, down from 68% a day ago.

Technical analysis: Mexican Peso rebounds as USD/MXN slides beneath 19.30

Despite the ongoing correction during Wednesday's session, the USD/MXN rally remains in play. The Relative Strength Index (RSI) exited overbought conditions amid buyers' lack of effort to lift spot prices higher, yet they remain in charge and another attempt to test YTD high looms.

If USD/MXN edges above 19.50, the next stop would be 20.00. A decisive break will expose the YTD high at 20.22, followed by the 20.50 mark.

Conversely, if USD/MXN first support would be the 19.00 mark. Once cleared, this will expose the August 1 swing low of 18.42, followed by the 50-day Simple Moving Average (SMA) at 18.17.