Fundamental - The sentiment should lead into the consumer prices report that is expected to show a rise in consumer level prices by a 3.39 percent pace. The print would be higher than the 3.06 percent witnessed last month and confirm market speculation that rates may be on the way up....<See below for full story>
Technicals
The USD/MXN 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 38.2% fibo of 11.52-10.73 at 11.03 is initial resistance. Presenting a more bullish bias is the break above the 200 day SMA and the inverse head and shoulders pattern that began in mid July. A break above the neckline at 10.96 bolsters the bullish outlook. Of course, a breach of 10.73 negates the bullish view.
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Forming a double top in the emerging pair, the Mexican Peso broke through the support neckline to hit consolidation and support just above the 10.85 figure where previous support lay. Should the price action break further on the 10-minute shot, mounting selling pressure looks to take the underlying pair through till the 10.80 figure.
The breakdown below current support for the pair may be purported by upcoming economic reports regarding inflationary pressures. The notion would be comparable to the decision to leave the overnight benchmark rate at the current 7 percent last week as central bankers noted stabilization in prices. The sentiment should lead into the consumer prices report that is expected to show a rise in consumer level prices by a 3.39 percent pace. The print would be higher than the 3.06 percent witnessed last month and confirm market speculation that rates may be on the way up. The sentiment could detriment consumer confidence, which is scheduled for release preceding the consumer prices report. Expected to decline to a 108.6 reading, the survey may be reflective of the effects of already higher rates, tightening the flow of capital in the system. Effects would subsequently be seen in the gross fixed investment report which is estimated to have increased only slightly by 10.7 percent compared to a 14.4 percent increase in the month of May. Rounding out the week will be the trade balance report. Results are expected to remain the same in the month of July as they the fell short in June by 319 million pesos.
Comparatively, although the schedule was full of events, a bulk of the focus remained on the overnight rate decision and the current account balance. Leaving the overnight rate at the current 7 percent, central bankers noted that prices seem to have stabilized in the month, offering the market some suggestions of a near term rate hike. However, some reservations emerged after the national unemployment rate ticked higher by 35 basis points to 3.95 percent. The increase in unemployment came as a surprise considering the rather positive economic data that has been released in recent weeks. Nonetheless, the economy continues to sport annualized growth of 2.5 percent, a fact that is likely to add to near term Peso strength.
Economic Releases for September 4 September 8
Date Event GMT EST Consensus Previous 9/4 Consumer Confidence (AUG) 19:30 15:30 108.6 109.7 9/7 Consumer Prices (MoM)(AUG) 19:30 15:30 0.43% 0.27% 9/7 Consumer Prices Core (MoM) 19:30 15:30 0.16% 0.28% 9/7 Consumer Prices (YoY) 19:30 15:30 3.39% 3.06% 9/7 Gross Fixed Investment (JUN) 19:30 15:30 10.7% 14.4% 9/8 Trade Balance (JUL) 19:30 15:30 -319M -319M
USDMXN 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 38.2% fibo of 11.52-10.73 at 11.03 is initial resistance. Presenting a more bullish bias is the break above the 200 day SMA and the inverse head and shoulders pattern that began in mid July. A break above the neckline at 10.96 bolsters the bullish outlook. Of course, a breach of 10.73 negates the bullish view.
