Mexican Peso retreats against the US Dollar ahead of Mexican Retail Sales data, US tax vote

• The Mexican Peso loses momentum ahead of key fundamental catalysts on Wednesday.
• Mexico awaits March Retail Sales while the United States prepares for a key vote on President Trump's proposed tax bill.
• The USD/MXN eyes psychological resistance at 19.30 after falling to fresh year-to-date lows on Tuesday.

The Mexican Peso (MXN) and the US Dollar (USD) are gearing up for a crucial day of economic and fundamental headwinds, which could offer further insight into the current and projected growth outlooks for both economies.

As the Mexican Peso continues to trade below a key psychological support-turned-resistance level at 19.30 against the US Dollar, the upcoming release of Mexico's March Retail Sales data at 12:00 GMT is expected to guide price action for the emerging market (EM) currency, potentially triggering volatility if the data deviates from expectations.

Meanwhile, the projected trajectory of the Greenback remains in focus as investors await further commentary from US Federal Reserve (Fed) officials and the highly anticipated House of Representatives vote on President Donald Trump's "One Big Beautiful Bill Act." 

Market participants are closely assessing the short- and long-term implications of the proposed tax legislation, which could significantly influence the fiscal policy outlook and investor sentiment toward the US Dollar.

Mexican Peso daily digest: USD/MXN hinges on Mexico's Retail Sales and Trump's proposed tax bill

• Mexican Retail Sales are expected to increase by 0.1% in March compared to the 0.2% rise in February, with the YoY figures projected to rise 2.2% from -1.1%.
• As the US Dollar drives broader market direction, shifts in USD sentiment, driven by US fiscal policy, economic data, or Fed signals, tend to dictate the short-term trajectory of USD/MXN, with the Peso reacting accordingly.
• President Trump's "One Big Beautiful Bill" aims to extend the 2017 Tax Cuts and Jobs Act and introduce new tax relief measures. 
• Suggested amendments would include State and Local Tax (SALT) deductions, which are expected to triple from $10K to $30K for married couples in the US, reducing the amount of income the government receives per tax year and placing additional pressure on the fiscal budget.
• To offset the cost of expanded tax cuts, President Trump has proposed reducing expenditure on programs associated with Medicaid, food stamps, and green energy subsidies, while reallocating funds toward defense and immigration enforcement. 
• On the US side, S&P Global will release the preliminary Purchasing Managers Index (PMIs) for May and Existing Home Sales data for April on Thursday for fresh economic signals.

Mexican Peso technical analysis: USD/MXN trades cautiously with trendline resistance intact

The USD/MXN dropped to its lowest level since October on Tuesday, breaking through the previous psychological support level, which has now turned into resistance at 19.30. 

Currently, prices are below the descending trendline established from the April decline, providing an imminent barrier of resistance at 19.28, a level that is currently being tested by USD/MXN bulls.

USD/MXN daily chart

The Relative Strength Index (RSI) indicator, slightly recovering to 36.97, is reflecting a slight decline in bearish momentum. Since the 30 mark is considered a potential oversold territory, the bearish trend remains intact, with the next key support level at the round number of 19.20. 

On the other hand, if USD strength resurges and prices rise above the descending trendline, USD/XN could see a retest of the April low near 19.47, bringing the 20-day Simple Moving Average (SMA) into play at 19.53.