Fundamental: The Mexican Peso held near a one month low versus the dollar at 11.03 in the past week, as weaker core consumer prices increased the probability that Banco de Mexico would move to cut the 7.00% benchmark rate. The central bank has left the overnight rate at a two-year low for the past four months, which follows nine straight months of monetary policy loosening in an effort to bolster growth.
Last week brought about a mixed bag of data, with August consumer prices jumping more than anticipated by 3.47% in annual terms and 0.51% from July. The inflationary measure gained as a result of increased costs for tomatoes, eggs, and avocados. Although price acceleration in August reached the fastest pace in seven months, inflation is relatively tame for a Latin American country and leaves Banco de Mexico room to lower interest rates once more before year end. Meanwhile, gross fixed investment slowed to 11.1% in June from 14.4% the month prior. The decline was a result of slower demand for imported machinery and equipment, while national demand actually increased, serving as a MXN positive factor. The trade balance for July was released as expected, as the figure was posted unrevised at a deficit of 319 million pesos. The following Tuesday, Mexican industrial output rose slower than anticipated by 5.8% in July from last year, pushed higher by a thriving construction industry, booming auto exports to the United States and rising oil production.
In the week going forward, the focus is sure to lie on the overnight rate decision by Banco de Mexico. The central bank is widely expected to hold rates at 7.00% at their meeting on September 22nd, however, with a new President-elect, Felipe Calderon, set to take office on December 1st , they are likely to hold off on further reductions until then. Other important releases due out next week include the unemployment rate, which sits at a 3.95%. Though the rate could rise again in August, it is likely to be a result of increased participation rates. Retail sales for the month of July will round out the week and should slow slightly to 4.0% from 4.2%.
Economic Releases for September 14 September 22
| Date | Event | GMT | EST | Consensus | Previous |
| Sept 15 | Aggregate Supply and Demand (Q2) | 19:30 | 15:30 | 7.1% | 8.5% |
| Sept 21 | Unemployment Rate (AUG) | 19:30 | 15:30 | -- | 3.95% |
| Sept 22 | Corto Banxico (SEP 22) | 14:00 | 10:00 | -P79M | -P79M |
| Sept 22 | Overnight Rate (SEPT 22) | 14:00 | 10:00 | 7.00% | 7.00% |
| Sept 22 | Mexico Bi-Weekly CPI (SEP 15) | 19:30 | 15:30 | 0.37% | 0.30% |
| Sept 22 | Retail Sales (INEGI) (JUL) | 19:30 | 15:30 | 4.0% | 4.2% |
Technical: Last weeks commentary was the USDMXN has continued its rally off of the 8/16 low at 10.73. The most recent rally from the 8/30 low at 10.84 is likely the third wave in a 3 wave correction. The most likely terminus for the end of this rally is 11.09, where wave a (10.73 to 10.98) equals wave c (beginning at 10.84). The pair topped out at 11.0935 on 9/11 and slipped to 11.0005 yesterday. Oversold RSI on the hourly has given way to a rally from there resistance is at former intraday support (9/11) at 11.0500. A push above there exposes the 11.0935 high. The 3 wave structure suggests that prices are headed lower however and initial fibo support is at the 38.2% fibo of 10.7325-11.0933 at 10.9555.
