• The Mexican Peso is stalling in an uptrend on rumors of the carry trade unwinding. 
• Mexican Retail Sales data is scheduled for release on Tuesday.  
• From a technical perspective, USD/MXN is unfolding a down leg within a rising channel.

The Mexican Peso (MXN) edges lower at the start of the European session on Tuesday, as rumors persist that the carry trade which had hitherto been favorable for the Peso is unwinding.  

Interest rates in Mexico are relatively high at 10.75%, which attracts demand from the carry trade – an operation in which traders borrow in a currency with low interest rates, like the Japanese Yen (JPY) and use the money to buy higher-interest paying currencies such as the Mexican Peso. The profit from the trade is the difference between the interest paid on the loan and the interest earned on the investment, minus any currency depreciation.

The buzz in social media seems to be that the carry trade is unwinding, however, and flows that were going into the Peso are drying up. This has been put forward as one factor in the recent appreciation of the Japanese Yen. If so, and the influence of the carry trade is decreasing, the implications for the Peso will be negative. Given the still-wide interest-rate differential between Mexico and Japan, however, it seems unlikely the carry trade will completely cease.