- The Mexican Peso pauses its decline following robust economic data from the US, its largest trading partner.
- Positive data from China alleviates slowdown concerns and supports emerging market currencies, including the MXN.
- USD/MXN stalls, forms a Shooting Star candlestick pattern, and begins to reverse.
Mexican Peso Recovers Amid Positive Economic Data
The Mexican Peso (MXN) is showing signs of recovery on Friday, bouncing back slightly after a three-day decline. This uptick follows encouraging economic reports from the US, Mexico's largest trading partner.
A mix of better-than-expected growth data from China and robust US Retail Sales and Jobless Claims has helped boost market sentiment, allowing the Peso to find some support. The positive Chinese data alleviated fears of a slowdown, creating a favorable backdrop for emerging market currencies, including the MXN. Meanwhile, strong US economic indicators bolster the Peso’s outlook due to the significance of US exports to Mexico.
However, several Peso-negative factors still loom large, including threats from former President Trump regarding potential tariffs on Mexican car imports, ongoing concerns about Mexico’s economic slowdown supported by a recent IMF report, political risks stemming from controversial constitutional reforms, and persistent worries about the budget deficit.
Recovery Driven by US and China Data
The Mexican Peso likely received additional support on Friday morning following positive data from China, which boosted global market sentiment and typically benefits the Peso.
China's GDP grew by a stronger-than-expected 4.6% year-on-year in Q3, slightly down from Q2’s 4.7% but better than the 4.5% forecasted by economists. On a quarterly basis, GDP increased by 0.9% in Q3, exceeding the 0.7% growth seen in Q2, though below the 1.0% forecast.
Retail Sales in China surged 3.2% year-on-year in September, up from 2.1% the previous month and surpassing expectations of 2.5%. Similarly, Industrial Production rose 5.2% year-on-year in September, exceeding both the prior reading of 4.5% and the forecast of 4.6%.
Technical Analysis: USD/MXN Faces Correction
USD/MXN has stalled after three consecutive days of gains, showing signs of a potential correction. On Thursday, the pair formed a small Shooting Star candlestick, a bearish pattern that suggests a near-term pullback may be imminent. For this pattern to be confirmed, a down day is needed today, which will become clear by the end of Friday.
USD/MXN Daily Chart
If a pullback occurs, it is expected to be brief, as USD/MXN is likely in a short-term uptrend, consistent with the principle that "the trend is your friend."
The break above the key level of 19.83 (the October 1 high) has opened an upside target in the range of 20.10-20.15, with the September 10 high at 20.13 still in play.
Additionally, the Relative Strength Index (RSI) indicates that the strong momentum from the past three days remains intact, reinforcing a mildly bullish outlook overall.
