- The Mexican Peso pulls back from two-week highs after stronger-than-expected US employment data.
- Futures markets have increased the odds of a Federal Reserve rate cut later this December.
- Technically, the double top formation at 20.80 in USD/MXN indicates potential for a deeper correction.
The Mexican Peso (MXN) is trading nearly flat against the US Dollar after a volatile reaction to the release of US employment data. The USD/MXN pair remains undecided, hovering around the resistance zone above the psychological 20.00 level following a three-day sell-off.
US Nonfarm Payrolls for November exceeded expectations, with wage growth holding steady at elevated levels. However, an uptick in the Unemployment Rate has fueled hopes of further Federal Reserve (Fed) easing in December, limiting the US Dollar’s upward momentum.
On Thursday, data revealed a higher-than-expected increase in US unemployment claims, coupled with a weaker-than-forecast ADP private employment report. These factors have weighed on the US Dollar broadly.
Meanwhile, in Mexico, Banxico Deputy Governor Irene Espinosa cautioned against aggressive rate cuts, highlighting that a rise in the minimum wage could add upward pressure on inflation. Her remarks have lent some support to the MXN.
Daily Digest Market Movers: Mexican Peso Rally Stalls
- US Employment Data: Nonfarm Payrolls rose by 227K in November, significantly higher than the upwardly revised 36K in October and beating market expectations of a 200K increase.
- Wage Growth and Unemployment: Hourly wages grew at a steady annual rate of 4%, slightly above the forecast of 3.9%, while the Unemployment Rate edged up to 4.2% from 4.1%.
- Fed Rate Cut Expectations: The CME Group’s FedWatch Tool shows the probability of a 25 bps rate cut in December has surged to 90%, up from under 70% after the data release and around 60% earlier in the week.
- Banxico Outlook: A Citi Mexico survey indicates that most economists expect the Mexican central bank to cut rates by 25 bps in December, with GDP projected to grow by 1.5% in 2024 and 1% in 2025.
- Fed Policy Remarks: Federal Reserve Chair Jerome Powell emphasized the stress on the US economy earlier this week, urging caution in implementing rate cuts. His comments suggest the easing cycle may aim for a higher terminal rate than previously expected.
Mexican Peso Technical Outlook: USD/MXN Tests Support at 20.15
The immediate outlook for USD/MXN is bearish, as the pair has pulled back from the late November highs around 20.80. However, it is currently testing a strong support zone between 20.05 and 20.15.
The 4-hour Relative Strength Index (RSI) is in bearish territory at approximately 38, and the double top at 20.80 points to the potential for a deeper correction.
If the pair drops below the 20.00 psychological level, which also serves as the neckline of the double top, the next support target would be the November low at 19.75. On the upside, resistance levels are at the December 2 high of 20.60 and the November peak at 20.80.
USD/MXN 4-Hour Chart
