USD/MXN retreats on Friday, correction looks limited

The USD/MXN is modestly lower on Friday still up for the week. It bottomed at 20.36, a three-day low before bouncing to the 20.45 zone. The outlook remains bullish for the pair.

Fed and Banxico: rate hikes to continue

On Friday, the US dollar lost momentum after the beginning f the American session amid an improvement in market sentiment, following the US jobs report. “Another robust gain in payrolls should squash discussions that the economy is already in a recession. Employers added 372K jobs in June, with the unemployment rate holding steady at 3.6%. Wage growth eased up a touch, advancing 0.3%, but with hiring still solid, we believe the June jobs report bolsters the case for another 75 bps rate hike at the FOMC's July 27 meeting”, explained analysts at Wells Fargo.

Equity markets are about to post weekly gains still the caution stance prevails amid a worsening economic outlook and higher interest rates ahead. The current environment makes it difficult for the Mexican peso to sustain any rebound. The Bank of Mexico is expected to raise again by 75 bps the key interest rate, offering some support to the peso, although the reasons for the aggressive hike are negative. Inflation hit in June 7.99%, the highest level since 2001.

The MXN remains among the few currencies to be still up against the US dollar on the year.

Still bullish but limited under 20.70

The USD/MXN is about to post another weekly gain. It is hovering around 20.45, far from the weekly top. A recovery above 20.45, would keep the door open for another test of 20.70. A daily close above 20.75 is likely to signal a test of 20.90, the last defense to 21.00.

On the flip side, a consolidation below 20.40 would strengthen the Mexican peso, paving the way to the 20-day Simple Moving Average, currently at 20.25; below await the 200-day SMA at 20.18.

Technical levels