- The Mexican Peso rebounds from daily lows to trade in positive territory.
- Weak Mexican economic data this week fuels speculation of a Banxico rate cut on Thursday.
- USD/MXN remains range-bound, with upside capped below 20.30.
The Mexican Peso (MXN) has turned positive on Friday, posting marginal gains as the US Dollar reverses its recent strength. This keeps the USD/MXN pair largely flat for the week after fluctuating above the key 20.00 level, with the US Dollar previously supported by a sharp recovery in US Treasury yields.
US Jobless Claims data on Thursday bolstered expectations of a Federal Reserve rate cut next week, although higher Producer Price Index (PPI) figures led traders to anticipate a gradual easing cycle in 2024.
In contrast, Mexican data disappointed this week, with October’s Industrial Output falling worse than expected and November’s consumer inflation easing more than forecasted. These figures have strengthened the view that the Bank of Mexico will cut rates for the fourth consecutive time next week.
Daily Digest Market Movers: MXN Weighed Down by Weak Mexican Data and USD Strength
- The US Dollar Index continues its upward momentum, poised for a 1% increase this week, supported by rising US yields. The 10-year yield has climbed 20 basis points, surpassing 4.30% for the first time in three weeks.
- US Consumer and Producer inflation data this week shows accelerating price pressures, which is likely to limit the Federal Reserve’s easing potential next year.
- According to the CME FedWatch tool, markets are almost fully pricing in a 25 bps rate cut after the December 17-18 meeting, with expectations for two more cuts next year, while the likelihood of three cuts has diminished.
- In Mexico, Thursday’s data revealed a 1.2% contraction in Industrial Production for October, far worse than the expected 0.2% decline. Year-on-year, Industrial Output fell by 2.2%, compared to the expected 0.6% drop.
- Earlier this week, Mexican consumer prices eased to a 4.55% annual rate from 4.76% in October, below the expected 4.59%, while monthly CPI eased by 0.44%, also missing the expected 0.48%.
Mexican Peso Technical Outlook: USD/MXN Capped Below 20.30
The USD/MXN pair has rebounded from the key support at the psychological 20.00 level but remains confined within the weekly range, unable to break above the December 5 and 10 highs near 20.30.
The short-term bias remains bearish as long as the 20.30 resistance holds. The double top formation at 20.80 points to the potential for a deeper correction.
A break above 20.30 would shift focus toward the December 2 high at 20.60, followed by November’s peak around 20.80. On the downside, the 20.00 level continues to support the pair. A move below this level could target the October 24 and November 7 lows at 19.75.
USD/MXN 4-Hour Chart
