The Mexican peso rallied to a 10-month and broke below the psychological level of 18 after softer than expected US data. In the US, the May advance retail sales reading disappointed with a -0.1% print, lower than estimated flat reading. US consumer prices index fell to 0.1% in May, analysts’ expected a 0.2% gain.
The peso’s key respect of the 50-day SMA occurred in mid-May after the the Mexico Central Bank (Banxico) surprised markets and raised the overnight rate by 25 basis points to 6.75%. Banxico raised rates in order to anchor inflation expectations and avoid contagion in price formation. Last week, inflation came in at 6.2% annually and was the highest level since April 2009 and further above the 2-4% target range.
Price action on the USD/MXN daily chart shows that after a rangebound month of May, price is now continuing to slide lower. Major resistance remains the 18.50 zone, while key support lies at the 17.50 region. If the bearish reversal continues, price may not find support until the 17.0000 to 17.2500 region. To the upside, 18.6400 remains major resistance.
Trade: Sell USD/MXN at 17.9525, with a stop loss at 18.1025 and a take profit at 17.6025. The Risk/Reward Ratio is 1:3