The Mexican peso extended its run of gains as USD/MXN slipped about 0.34% on Monday, trading near 18.08 after topping around 18.26, following softer US indicators and an underwhelming Nonfarm Payrolls report late last week. Risk appetite improved even as geopolitical tensions persisted, with equities finishing higher, while US yields and the Dollar also firmed. The 10-year Treasury yield was last cited at 5.307% after touching 5.349%, and the Dollar Index was up 0.23% at 102.15.
US data showed the ISM Services PMI eased to 54.9 in September from 55.4, coming in below the 55 consensus, while the prices paid component rose to 74 from 72.6. In Mexico, Gross Fixed Investment increased 1.4% MoM in July versus 1.3% previously, as focus turns to consumer and producer inflation on Thursday and the central bank’s latest minutes. The IMF forecast 1.5% growth this year and 1.8% in 2027, while Mexico’s 2027 budget pencilled in public debt rising to 55% of GDP, and policymakers also await Federal Open Market Committee minutes on Wednesday.
Technical Outlook and Near-Term Risks for USD/MXN
We believe derivative traders should prepare for a potential near-term pullback in the USD/MXN pair as it hovers near the 18.00 level. Although the overall trend remains bullish with the pair trading well above its key moving averages, the Relative Strength Index (RSI) has entered overbought territory above 72. This technical stretch suggests that a temporary corrective pause is highly likely before any further upward momentum.
Supportive Fundamentals and Volatility Triggers
To back this view, we look at Mexico’s strong economic buffers, such as annual remittances which have reached record highs of over $63 billion, providing steady fundamental support for the peso. Furthermore, even with shifting global policies, the Bank of Mexico maintains a highly restrictive benchmark interest rate of 10.50%, preserving a lucrative yield differential against the US. We can leverage these factors by utilizing short-term options or trading range-bound strategies near the 18.25 resistance zone.
We must also stay highly alert to the upcoming central bank minutes and domestic inflation data, which could spark sudden volatility in the coming weeks. If a deeper pullback occurs, we expect solid support to emerge around the moving average cluster near 17.25. Traders using contract-based derivative instruments should keep tight risk controls and closely monitor the US 10-year Treasury yield, which is currently hovering above 5.30%.
