USD\/MXN hovered near 17.40 on Tuesday, extending modest losses into a third session, while the US Dollar stayed broadly firm ahead of the Federal Reserve\u2019s decision on Wednesday. Recent US data were softer: the Conference Board Consumer Confidence Index eased to 90.8 in July from an upwardly revised 92.2 in June, and the NER Pulse report showed private employers added an average of 15K jobs per week in the four weeks to 11 July, with hiring momentum slowing for a fifth straight week. Mexico\u2019s Peso drew support from US tariff adjustments, as Washington set a 10% levy on Mexican imports outside the USMCA, compared with 12.5% for economies lacking a trade agreement.<\/p>\n
Focus then shifts to Mexico\u2019s preliminary second-quarter GDP on Thursday, with growth expected at 1.3% after a 0.6% first-quarter contraction, while annual expansion is forecast at 1.5% versus 0.2% previously. On the 4-hour chart, USD\/MXN traded at 17.4349 and remained capped below the 100-period SMA at 17.4657 and the 20-period SMA at 17.4722; the RSI stood at 45.1. Resistance sits at 17.4399 and 17.4584, then 17.4837 and 17.4928, while support is seen around 17.38, the 22 July low.<\/p>\n
We recommend that derivative traders position for near-term volatility by using short-term option straddles ahead of the Federal Reserve\u2019s rate decision later today. With the central bank expected to hold rates steady while weighing weak consumer confidence at 90.8 and slowing job growth, any unexpected shift in guidance will spark sharp moves. Historically, sudden changes in Fed policy tones have caused daily swings of over 1.5% in the USD\/MXN pair.<\/p>\n
From a technical perspective, we should look to establish short positions on temporary rallies toward the dense resistance zone between 17.44 and 17.47, where the 20-period and 100-period Simple Moving Averages cluster. Since the Relative Strength Index remains neutral at 45.1, the market has plenty of room to fall further before becoming oversold. Traders can utilize bearish put spreads targeting the 17.38 support level to capture this downward momentum. <\/p>\n
We must also prepare for tomorrow\u2019s preliminary Mexican Q2 Gross Domestic Product release, which is expected to show a strong 1.3% rebound. This growth, alongside Mexico\u2019s massive trade profile with over $475 billion in annual exports to the U.S., keeps the Peso fundamentally strong. Furthermore, the newly announced 10% tariff rate\u2014which is lower than the 12.5% rate imposed on non-USMCA countries\u2014preserves Mexico’s competitive edge and limits the upside for USD\/MXN.<\/p>\n
With Banco de M\u00e9xico keeping its benchmark interest rate at a highly restrictive 11.00% compared to the Fed’s lower rate, the carry trade remains highly attractive. We suggest implementing yield-harvesting derivative structures, such as selling out-of-the-money USD\/MXN call options, to capture premium over the coming weeks. This strategy allows us to benefit from both the high interest rate differential and the currency pair’s current bearish bias.<\/p>\n\n\n\n