• The Mexican Peso continues depreciating on Wednesday after Tuesday’s sell-off following weak retail sales data. 
• Carry trade outflows and investor concerns regarding judicial reforms are also weighing on the MXN. 
• Technically, USD/MXN may be starting a new leg higher within its rising channel. 

The Mexican Peso (MXN) edges lower in its most heavily-traded pairs as the European session gets underway on Wednesday. The Peso fell between 1.50% and 2.00% in its key pairs on Tuesday after the release of Retail Sales data showed shoppers curtailed their spending in June. 

The weak retail sales data could suggest inflation may be set to fall further, increasing the chances of the Banco de Mexico (Banxico) cutting interest rates further – a negative for the Peso, since lower interest rates attract less foreign capital inflows. 

Lower interest rates could increase speculation investors are pulling out of their long Peso carry trade positions. With interest rates falling in Mexico and the Peso starting to trend lower too – whilst the opposite happens in Japan – the carry trade, which capitalizes from the interest rate differential between the two currencies, could see more outflows from the MXN.