The Mexican peso generally settles ahead of the eventful week with the Banxico rate decision

The Mexican peso is gearing up for a busy calendar week.

• The Bank of Mexico holds its policy meeting on Thursday and major inflation data is released on Tuesday.
• USD/MXN is gaining momentum as it rises back into its ascending channel.

The Mexican peso (MXN) traded between warm gains and losses across its major pairs on Monday, ahead of a week in which a slew 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 the impact of data releases, Banxico meeting

The Mexican peso could be moved by domestic public data and the Banxico policy meeting next week.

On Monday, retail sales for July will be released at 12:00 GMT. Data for June showed a 3.9% drop from last year and a 0.5% month-on-month drop. If the new data shows an improvement in consumer spending, it could support the Peso.

On Tuesday, first-half inflation and core inflation for September will hit the wire at 12:00 GMT. Earlier data showed a 0.03 percent drop in inflation and a 0.1 percent rise in core inflation. If the new figures are higher, they could influence Banxico’s decision on Thursday. Higher inflation will increase the likelihood that the central bank will keep interest rates high, and vice versa for lower inflation.

On Thursday, Banxico will hold its policy meeting and may 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 because it reduces foreign capital inflows.

At the August meeting, Banxico decided to cut interest rates by 0.25% (25 bps), taking its official rate from 11.00% to 10.75%. The decision was a close call, with only three members voting for the cut, compared to two who wanted to keep rates where they were.

“Some members felt that the slowdown in activity was larger than expected and that risks are biased to the downside. All said that disinflation was expected to continue, but most believed that the balance of risks to inflation was biased to the upside and that the inflationary environment remained complex. Since that meeting, inflation rates have fallen further. Banxico’s next meeting is on September 26, and if disinflation continues, another 25 basis point cut to 10.50% looks likely. The swaps market is pricing in 175bp of easing over the next 12 months,” says Dr Win Thin, global head of markets strategy at Brown Brothers Harriman (BBH).

Finally, trade balance data is released on Friday. It posted a deficit of $0.072 billion and a surplus of $1.168 billion on a seasonally adjusted basis in August. In general, consistent surpluses are positive for a currency and vice versa for deficits.

Technical Analysis: USD/MXN is establishing a short-term uptrend

USD/MXN continues its rally for the fourth day after finding technical support at the base of a long-term rising channel.

Although the pair fell 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 in the chart below) just after 19:00, which prevented so far a deeper one. slide.

USD/MXN 4 Hour Chart

There is a possibility that USD/MXN has found stability at these support levels and is starting a short-term uptrend within the channel. It is already in a medium to long-term uptrend, so the direction of the “current” is north.

However, a close above 19.53 (highest since August 23), would further confirm that the pair is in a near-term uptrend.