Mexican Peso faces pressure amid economic contraction concerns; falling US yields limit USD/MXN upside.

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• Mexican Peso faces pressure amid economic contraction concerns; falling US yields limit USD/MXN upside.
• INEGI’s report shows Mexico’s economy shrinking by 0.7% MoM, with a modest annual growth of 1.3%.
• US Treasury yield decline offers limited support to US Dollar as Conference Board’s LEI dispels recession fears.

The Mexican Peso (MXN) lost traction against the US Dollar (USD) on Tuesday as traders from the United States (US) returned from the Presidents’ Day holiday. Monday’s data from Mexico suggests the economy most likely contracted in the first month of 2024, while a fall in US Treasury bond yields caps the USD/MXN upside. The pair exchanges hands at 17.04, up by a minuscule 0.06%.

A report from Mexico’s National Statistics Agency (INEGI) on Monday released the Indicator of Economic Activity (IOAE), which revealed the economy contracted -0.7% MoM, even though yearly figures grew by 1.3%. While data could have triggered weakness in the Mexican Peso, the US holiday capped the emerging market (EM) currency’s fall.

Across the border, US Treasury bond yields dropped, keeping the US Dollar pressured against most currencies, except EMs. In the meantime, the Conference Board (CB) revealed its Leading Economic Index (LEI), which no longer signals an upcoming recession in the US.

On Monday, I wrote, “The USD/MXN seesaws near the 17.05 mark, below the 50-day Simple Moving Average (SMA) at 17.09.” At the time of writing, the pair remains within the aforementioned level, though the Relative Strength Index (RSI) has begun to edge higher at the risk of shifting bullish. That and the USD/MXN clearing the 50-day SMA could open the door to test the 200-day SMA at 17.28. Further upside lies at the 100-day SMA at 17.38, before the pair rallies toward 17.50.

Conversely, sellers must drag the exchange rate below the 17.00 figure if they would like to remain hopeful of challenging last year’s low of 16.62.

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