MEXICAN PESO KEY POINTS:USD/MXN opens the week with a neutral bias, fluctuating between tiny gains and losses around the 19.85 line. The focus of traders’ attention on Tuesday will be on June inflation data from the United States. The medium-term forecast for the Mexican peso is positive, albeit there may be some headwinds in the short term.
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Will the United States’ Hot Inflation Data Reignite Treasury Yields? What Will Happen to the Dollar? USD/MXN (US Dollar – Mexican Peso) began the week with a generally neutral bias, bouncing between tiny gains and losses around the 19.85 mark, in a setting of little macro data of significance and lower volatility, as is typical of the summer season. Despite the lack of catalysts on Monday, a number of significant economic data on the docket in the coming days could change the scenario. Investors will be looking for hints on inflation patterns and if supply constraints are beginning to clear in the United States CPI data on Tuesday. The consumer price index is expected to fall slightly to 4.9 percent y/y in June from 5% y/y in May, but core CPI is expected to rise from 3.8 percent y/y to 4 percent y/y, the highest level since 1991. It’s critical to keep an eye on these numbers because any upward shocks might frighten investors and persuade the “transitory camp” that inflation is becoming more entrenched and widespread. Needless to add, this scenario might raise long-term Treasury yields, bolster the case for Federal Reserve monetary tightening, and cause significant EMFX losses. On the other side, if inflation slows and comes in below forecasts, speculators may be positioning for a postponement of the Fed’s tapering announcement, weakening the dollar and benefiting currencies like the Mexican peso. DailyFX Economic Calendar is the source of this information. In earlier pieces, I argued that MXN’s outlook remained positive, bolstered by its appealing carry, which is currently being bolstered by Banxico’s hiking cycle. In the medium term, this notion holds true, albeit it should be highlighted that short-term headwinds are beginning to emerge. Looking at recent price activity across numerous asset classes, it appears that the reflation trade is nearing exhaustion as the global recovery slows and central banks consider reducing support. EMFX is vulnerable as global economic activity cools, but we’ll have to wait and watch how the global economy develops over the next several months to make a more definitive evaluation and rule out transient data noise. An rise in the number of COVID-19 infections caused by the more transmissible delta version is currently one of the primary dangers to recovery. Markets might become considerably more protective in the blink of an eye if big outbreaks occur in nations or regions with low vaccination rates, as could be the case, sparking a sell-off of risk assets (EMFX, for example). As a result, it’s critical to keep an eye on how the coronavirus pandemic develops and whether additional lockdowns and limitations are enforced. The light at the end of the tunnel is unmistakably seen, but the world remains in the tunnel, and the health crisis is far from ended. TECHNICAL ANALYSIS OF THE USD/MXN USD/MXN appears to be in a consolidation period from a technical standpoint, caught between resistance (20.20) and support (20.20). (19.80). A decisive advance beyond either of those levels would be required for price action to develop a short-term directional bias. If resistance is broken, USD/MXN might move to the 20.75 region, where the June high meets a 12-month falling trendline. If the exchange rate falls below 19.80, on the other hand, sellers may seize control of the market and drive the pair towards the 2021 bottom of 19.55. If this support fails to hold, the psychological level of 19.00 will be the next level of concern on the downside. Learn more about technical analysis at DaillyFX Education. TECHNICAL CHARTEDUCATION TOOLS FOR TRADERS IN USD/MXNAre you just starting started with USD/MXN? Download our FX trader’s handbook for beginners. Would you like to learn more about yourself as a trader? Take our quiz to learn how IG’s client positioning data can help you understand market sentiment. Here’s where you can get a free guide on how to use this strong trading indicator. For weekly market updates and incisive analysis, sign up for the DailyFX Newsletter. —- Diego Colman, DailyFX Market Strategist, wrote this article. @DColmanFX is my Twitter handle./n
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