Market Data 
- The Mexican Peso gears up for a busy calendar week.
- The Bank of Mexico holds its policy meeting Thursday and major inflation data is out on Tuesday.
- USD/MXN gains momentum as it rises back up within its ascending channel.
The Mexican Peso (MXN) seesaws between tepid gains and losses in its major pairs on Monday, ahead of a week in which a raft of key economic data will be released and the Bank of Mexico (Banxico) will hold its September policy meeting on Thursday – all factors that could influence the Peso.
Mexican Peso to feel impact of data releases, Banxico meeting
The Mexican Peso could be moved by domestic data releases and the Banxico policy meeting during the week ahead.
On Monday, Retail Sales for July will be released at 12:00 GMT. The data for June showed a 3.9% fall YoY and a 0.5% decline MoM. If the new data shows an improvement in consumer spending, it could support the Peso.
On Tuesday, 1st half-month inflation and core inflation for September will hit the wires at 12:00 GMT. The previous data showed a 0.03% decline in inflation and 0.1% rise in core inflation. If the new figures are higher, they could influence the Banxico decision on Thursday. Higher inflation will increase the probability that the central bank will keep interest rates high and vice versa for lower inflation.
On Thursday, Banxico will hold its policy meeting and could decide to adjust its key interest rate, currently at 10.75%. Most economists think the bank will cut by 0.25%, bringing it down to 10.50%. The expectation of lower interest rates is generally negative for a currency since it lessens foreign capital inflows.
At the August meeting, Banxico decided to cut interest rates by 0.25% (25 bps), bringing its official rate from 11.00% to 10.75%. The decision was a close call, with only three members voting for the cut versus two who wanted to keep rates where they were.
“Some members felt that the slowdown in activity was greater than expected and that risks are biased to the downside. All said that disinflation was expected to continue, but most felt that the balance of risks to inflation were biased to the upside and that the inflationary environment remains complex. Since that meeting, inflation readings have fallen further. Next Banxico meeting is September 26 and if disinflation continues, another 25 bp cut to 10.50% seems likely. The swaps market is pricing in 175 bp of easing over the next 12 months,” says Dr. Win Thin, Global Head of Markets Strategy at Brown Brothers Harriman (BBH).
Finally, Friday sees the release of Balance of Trade data. This registered a $0.072 billion deficit and a $1.168 billion surplus on a seasonally adjusted basis, in August. Generally consistent surpluses are positive for a currency and vice versa for deficits.
Technical Analysis: USD/MXN establishes short-term uptrend
USD/MXN continues its rise into the fourth day after finding technical support at the base of a long-term rising channel.
Although the pair declined sharply last week, it found key support from the base of a long-term rising channel and the 50-day Simple Moving Average (not shown on the chart below) at just above 19.00, which has so far prevented a deeper slide.
USD/MXN 4-hour Chart
There is a possibility USD/MXN has found stability at these support levels and begun a short-term uptrend within the channel. It is already in a medium and long-term uptrend so the direction of the “current” is north.
A close above 19.53 (August 23 swing high), however, would further confirm the pair was in a bullish short-term uptrend.
Economic Indicator
1st half-month Inflation
The 1st half-month core inflation index released by the Bank of Mexico is a measure of price movements by the comparison between the retail prices of a representative shopping basket of goods and services. The purchase power of Mexican Peso is dragged down by inflation. The inflation index is a key indicator since it is used by the central bank to set interest rates. Generally speaking, a high reading is seen as positive (or bullish) for the Mexican Peso, while a low reading is seen as negative (or Bearish).
