Mexican Peso recovers marginally after release of macroeconomic data

• The Mexican Peso recovers a little after the release of more inflationary data from Mexico. 
• The data makes it less likely the Bank of Mexico will cut interest rates which supports the currency. 
• On the charts, USD/MXN closes in on a key support level at 17.87.

The Mexican Peso (MXN) trades slightly lower in its key pairs on Tuesday, though it has recovered a little in the minutes after the release of more inflationary data from Mexico. 

More broadly, the Peso continues to drift higher as carry flows continue to favor the Mexican Peso against its counterparts due to the attractiveness to foreign investors of the relatively high interest rates on offer in Mexico (11.00%). 

Given the just-released data is showing inflation edging higher, the likelihood of interest rates falling any time soon is further diminished. This adds even more support to MXN. 

At the time of writing, one US Dollar (USD) buys 18.03 Mexican Pesos, EUR/MXN trades at 19.49, and GBP/MXN at 23.07.

Mexican Peso recovers as Banxico less likely to cut interest rates

The Mexican Peso recovers slightly in the minutes following the release of key macroeconomic data for Mexico on Tuesday. 

The Headline Inflation rate in Mexico in June came out at 0.38% on a month-on-month basis, beating the 0.24% expected by economists, and higher than the negative 0.19% of the previous month of May, according to data from INEGI. 

Core Inflation for June, which takes out volatile food and energy components, gave a reading of 0.22%, falling below the 0.24% estimated by economists, but above the 0.17% in May. 

The 12-Month Inflation rate in June, meanwhile, came out at 4.98%, which was higher than the 4.84% expected by economists, and the 4.69% previously. 

Mexican Consumer Confidence in June rose to 48.1 in June compared to 46.7 in May. 

The data makes it less likely the Bank of Mexico (Banxico) will be in a hurry to cut interest rates anytime soon. It comes after the Deputy Governor of the Banxico Jonathan Heath said he was adopting a data-dependent stance similar to that of Federal Reserve Chairman Jerome Powell in the US. 

Technical Analysis: USD/MXN slides lower towards line in the sand

USD/MXN continues steadily declining as it unfolds a short-term downtrend towards the key June 24 line-in-the-sand low at 17.87. 

USD/MXN Daily Chart 

The pair is likely to encounter support at the 17.87 level and could bounce. A decisive break below, however, would reconfirm the downtrending bias, with the next target lying at 17.50 (50-day Simple Moving Average).

It is possible the pair could be about to enter a sideways trend, with the floor at the aforesaid June 24 low and a ceiling at the 18.50 level, although this would require a reversal and rebound higher, and remains a speculative guess. 

As things stand the short-term trend is bearish and “the trend is your friend” suggesting it will extend. 

The direction of the medium and long-term trends, meanwhile, remain in doubt.