The Mexican peso pushed USD\/MXN to 24-month lows below 17.00 on Friday, before the pair rebounded to 17.02 after touching 16.97. A softer tone in US data weighed on the dollar: Retail Sales fell 0.6% month on month versus forecasts for a 0.1% rise and June\u2019s 0.2%, while the University of Michigan sentiment index slipped to 51 from 55.2, with inflation expectations little changed. With consumer and producer prices edging lower, markets priced out a Fed hike in 2026; for September, probabilities were 32% for a hike and 68% for no change.<\/p>\n
In Mexico, the calendar turns to the Bank of Mexico meeting minutes and Retail Sales, with US releases including housing data, the ADP Employment Change four-week average, jobless claims and flash PMIs. On charts, USD\/MXN traded near 17.0294, below the Moving Average Triple clustered around 17.3775 and under a descending resistance line near 17.4197, as the 14-day RSI hovered around 27. Key downside reference sat at 15.6176, while a recovery would need to retake 17.3775 and then break 17.4197.<\/p>\n
With the USD\/MXN pair hovering near two-year lows around 17.02, we believe derivative traders should prepare for heightened volatility in the coming weeks. The recent drop in U.S. retail sales by 0.6% and sagging consumer sentiment have convinced the market that the Federal Reserve will likely hold rates steady, with odds for a September pause currently sitting at 68%. We see this macroeconomic shift as a prime opening to position for continued peso strength, especially with the pair trading below key moving averages.<\/p>\n
We must closely watch the upcoming Bank of Mexico (Banxico) meeting minutes to gauge how long policymakers will maintain their benchmark interest rate, which currently stands at a high 10.50%. This massive yield differential of over 500 basis points compared to the U.S. Federal Funds rate continues to make the Mexican Peso a highly attractive target for carry trades. Derivative traders can exploit this environment by utilizing short-dated USD\/MXN put options to capture further downside while limiting risk.<\/p>\n
From a technical perspective, the daily Relative Strength Index (RSI) for USD\/MXN has dipped to 27, indicating that the pair is heavily oversold. While some traders might expect a temporary corrective bounce toward the 17.37 resistance level, we recommend using any short-term rallies to establish new short positions. Historically, when the RSI falls below 30 during a strong downtrend, the momentum often carries the price lower toward long-term support levels, which currently align near 15.61.<\/p>\n
We also suggest monitoring trade negotiations, particularly after Mexico’s Economy Secretary Marcelo Ebrard requested a reduction in the 25% tariff on Mexican-made vehicles. If the U.S. agrees to ease these tariffs, it could spark a massive wave of foreign direct investment into Mexico’s manufacturing sector, further boosting the peso. We advise traders to hedge against sudden trade-related volatility by buying out-of-the-money call options on the Mexican Peso to benefit from sudden breakout moves.<\/p>\n\n\n\n