Mexico Poor economic data and higher inflation

Mexico: Poor economic data and higher inflation

Mexico released its March trade balance earlier and the print continued the recent trend of poor economic data. The expectation was for $3.2B vs $2.681B in February. The result however was -$3.004B, although both imports and exports were much stronger YoY. Looking at some recent data from Mexico, a trend seems to be emerging. In addition to a worse than expected trade balance, other data over the past week missed expectations as well:

Economic Activity (FEB): -3.9% expected; -5.1% actual - WORSE
Retail Sales (FEB): -5.4% expected; -6.3% actual - WORSE
Mid-Month Inflation report (APR): 5.84% expected; 6.05% actual – WORSE

What are economic indicators?

The only report that was better was the March Unemployment rate, which was 3.9% vs 4.2% expected. However, the decrease in economic data and the rise in inflation should worry the Bank of Mexico (Banxico), who meet again on May 13^th. Of course, before then, Mexico’s central bank will have a look at April Business Confidence and March Industrial Production, as well as another look at the inflation rate. However, if the trend continues, Banxico will have a problem: higher inflation and lower economic data!

What are emerging market economies?

When the Bank of Mexico last met in March, the committee left rates unchanged at 4% after cutting 25bps in February. Banxico had to be happy when USD/MXN broke higher out of the descending wedge on February 18^th, which the pair had been in since early April 2020. With the help of a strong US Dollar in first quarter of 2021, the pair briefly broke above the 200 Day Moving Average and made a high on March 8^th at 21.6355. However, the pair pulled back into the March 25^th meeting had continued lower since.

Source: Tradingview, City Index

On a 240-minute chart, after moving lower from the recent highs on March 8^th, the pair formed another descending wedge, this time with the help of a weaker US Dollar. However, with poor data out of Mexico over the past week, USD/MXN was forced higher out of the descending wedge. First horizontal resistance is at 20.2475, and then a confluence of horizontal resistance and the 38.2% Fibonacci retracement level from the March 8^th highs to the April 20^th lows near 20.50. Support is back at the April 20^th lows of 19.78518, the top downward sloping trendline of the wedge near 19.728 and the bottom trendline of the wedge near 19.64. Note that the RSI is just beneath the 70 overbought/neutral line.

Source: Tradingview, City Index

Learn more about forex trading opportunities.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.