/ USD/MXN bounces off weekly lows amid weak US housing data

USD/MXN bounces off weekly lows but remains under pressure, trading below 17.00 for the fifth consecutive day. Weak US housing data and lack of economic data releases in Mexico keep USD/MXN within familiar levels. USD/MXN is trading at 16.7770 after hitting a daily low of 16.7232.

USD/MXN has traded below 17.00 for five consecutive days due to interest rate differentials.

The latest data from the U.S. Commerce Department showed a -8.0% decline in housing starts from the previous month's 21.7% increase, the highest in 11 months. Housing starts slowed from 1.631 million to 1.434 million. Building permits fell by -3.7% m/m, down from 5.6% in May, from 1.496 million to 1.440 million.

USD/MXN traders had no reaction to the data, continuing Tuesday's rally following the release of June retail sales data. The data released yesterday showed that sales rose a modest 0.2% month-over-month, down from the upwardly revised May figure of 0.5%. While this is a decline from the May report, it demonstrated the resilience of consumer spending despite the US Federal Reserve (Fed) tightening rates by 500 basis points (bps).

As for the Fed, CME's FedWatch tool shows that expectations for a 25 basis point rate hike in July are discounted. However, speculators seem confident that the Fed will not raise rates after the July meeting, with the first rate cut expected in March 2024.

This has provided support for the dollar, as evidenced by the Dollar Index (DXY). The DXY index, which reflects the performance of the U.S. dollar against a basket of six currencies, rose 0.43% to 100.352.

Given the fundamental backdrop, with the US Federal Reserve expected to raise rates and take a pause, and the Bank of Mexico keeping rates unchanged at 11.25%, the USD/MXN pair may continue to trade sideways. However, USD/MXN traders should keep in mind that expectations for the first rate cut by the Bank of Mexico are approaching by the end of 2023, which could open the way for the pair to recover.

USD/MXN price analysis: technical outlook

The daily chart of the USD/MXN pair shows a bearish bias, with the first resistance level that could trigger a shift to a neutral bias being at 17.0000, as the 20-day exponential moving average (EMA) is located at 16.9847. Otherwise, USD/MXN will continue to decline, heading towards the October 2015 low at 16.3267. From an intraday perspective, the 4-hour chart indicates that the Mexican peso (MXN) is weakening towards the daily R1 pivot at 16.7927, a break of which could lead to the R2 pivot at 16.8339 beyond yesterday's high of 16.7819. Immediate support is at the low of 16.6899.