Mexican Peso rally pauses ahead of US inflation report

The Mexican Peso (MXN) experienced a temporary lull against the US Dollar (USD) on Monday as traders capitalized on profits following an unexpectedly poor US jobs report from the previous week, and as attention shifted towards the upcoming release of US inflation figures on Wednesday. The USD/MXN pair was trading at 17.14 at the time of writing, having gained 0.05%.

In the preceding week, the Greenback faced pressure due to interventions by US and Japanese authorities aimed at strengthening the Japanese Yen; however, this shift appears to be waning as the US Dollar Index (DXY) has risen by more than 0.20%. The DXY, which measures the USD's performance against six currencies, is currently at 99.80, having broken through two-month lows at 99.40.

The US economy shed jobs during July's Nonfarm Payrolls release, but the Unemployment Rate saw a slight decline, reducing from 4.2% to 4.1%. Traders will also monitor the release of Initial Jobless Claims on Thursday for potential signs of weaknesses in the labor market. The focal point of the week is the US inflation data - both consumer and producer prices - set to be unveiled.

If the prices align with forecasts, it would suggest the resumption of disinflation, barring any rate hikes by the Federal Reserve. Mexico's inflation rate has been inching closer to the Bank of Mexico's (Banxico) target of 3% plus or minus 1%, as indicated by the National Statistics Agency (INEGI). This development is a relief for Banxico, which left interest rates unchanged on August 6, although it suggested that inflation risks were predominantly on the upside.

According to Citi Mexico expectations survey, all analysts anticipate Banxico's key policy interest rate to remain at 6.50% by year-end. Similarly, the median estimate suggests the USD/MXN exchange rate would conclude the year at 17.90. In the daily chart, the USD/MXN is currently trading at 17.1441, maintaining a bearish short-term outlook as the price remains below the clustered simple moving averages near 17.40 and the descending resistance trend line projected from the 18.16 level, hovering around 17.44.

The pair is trading beneath these key overlays, indicating that rallies are presently constrained. Meanwhile, the Relative Strength Index (14), currently at 33, suggests mild but not yet oversold downside momentum that could facilitate further softening before a more substantial rebound. On the upside, the primary resistance level is situated at the clustered simple moving averages around 17.40, followed by the descending trend-line barrier near 17.44, where sellers are expected to reappear if the pair attempts a corrective bounce.

Conversely, the main support is aligned with the longer-term trend-line break level near 15.66, leaving the intermediate zone largely unexplored. Should renewed selling pressure fail to regain the 17.40–17.44 range, any further downside movement could accelerate.