The Mexican Peso (MXN) defied expectations and gained ground against the US Dollar (USD) on Monday despite disappointing Retail Sales data. This upside move is attributed to hawkish comments from a Bank of Mexico (Banxico) official.

Factors Supporting the Peso:

• Banxico’s Hawkish Stance: Deputy Governor Espinosa’s comments suggesting March’s rate cut was premature and could hinder inflation control boosted the Peso’s value.
• Expectation of Stable/Slower Growth: Anticipation of slowing Mexican economic growth, reflected in the GDP figures due on May 23rd, might not significantly weaken the Peso.

Mexican Economic Data:

• Weak Retail Sales: March Retail Sales data fell short of expectations, indicating potential economic slowdown.
• Upcoming GDP Release: GDP figures for Q1 2024 are expected to show a slowdown, possibly due to higher borrowing costs.
• Banxico Minutes and Trade Data: Release of Banxico’s monetary policy meeting minutes and Balance of Trade/Current Account data are scheduled later this week.

Technical Analysis (USD/MXN):

• Peso Rally: USD/MXN is trading at 16.56, down 0.26%, indicating a Peso rally.
• Support Levels: A break below 16.50 could lead to a test of the 2024 low of 16.25.
• Resistance Levels: Reclaiming the 50-day SMA at 16.76 could signal a potential move towards the 100-day SMA at 16.91 and further resistance at the 17.00 level.

US Federal Reserve:

• Fed’s Comments: Federal Reserve Vice-Chair Jefferson’s comments about the disinflationary process being uncertain provide some support to the USD.

The Peso’s recent strength might be temporary. The upcoming economic data releases and the Fed’s policy stance will likely influence the MXN/USD pair’s direction in the coming days. The Peso might face headwinds if the data confirms a slowdown and the Fed remains hawkish.