- The Mexican Peso strengthens, driving USD/MXN down more than 1.5% to 20.28 after tariff speculation surfaced in The Washington Post.
- The US services sector showed signs of slowing in December, further contributing to investor caution amid volatile equity markets.
- Declining Mexican consumer confidence adds to concerns about the local economic outlook.
The Mexican Peso started the week on a positive note, strengthening against the US Dollar on Monday after The Washington Post reported that Trump aides are considering tariffs on "certain sectors," a more measured approach than initially proposed. However, President-elect Trump quickly denied the story, asserting that his tariff policy would not be scaled back. Despite his denial, the USD/MXN dropped over 1.5%, trading at 20.28 at the time of writing.
Market sentiment remains optimistic, but traders continue to be cautious due to Trump's comments on his social media platforms. US equities fluctuated after the Washington Post article but managed to hold onto most of their gains following Trump's rebuttal.
Recent data showed a slowdown in US business activity within the services sector for December, according to S&P Global, while Factory Orders in November declined after strong growth in October.
At the same time, Federal Reserve Governor Lisa Cook suggested that the central bank may adopt a more cautious approach to future interest rate cuts, given the solid performance of the economy and inflation proving more persistent than anticipated.
On the Mexican side, the Instituto Nacional de Estadística y Geografía (INEGI) reported a decline in Consumer Confidence for the second consecutive month in December, signaling growing pessimism among Mexican consumers as the year ended.
Daily Digest Market Movers: Mexican Peso Strengthened by Weak US Dollar
- The US Dollar Index (DXY) fell to a five-day low of 107.75, providing headwinds for the USD/MXN pair.
- The DXY's decline was triggered by a Washington Post article on President Trump's tariff plans.
- The US S&P Global Services PMI for December slowed to 56.8 from 58.5, surpassing estimates of 56.1.
- US Factory Orders in November dropped by 0.4% MoM, following October's upwardly revised growth of 0.5%, with economists expecting a contraction of -0.3%.
- Mexico’s Consumer Confidence for December stood at 47.1, a decline from 47.6 in the previous month, according to the national statistics agency.
- S&P Global reported that the US Services PMI dipped to 56.8 from 58.5, outperforming the forecast of 56.1.
USD/MXN Technical Outlook: Mexican Peso Gains, Testing Key Support Near 20.00
The USD/MXN is experiencing a sharp decline, approaching the 50-day Simple Moving Average (SMA) at 20.26. The Relative Strength Index (RSI) has turned bearish, signaling potential for further strength in the Mexican Peso. Should sellers push the price below this level, the 20.00 mark could come into play. Continued weakness could lead the pair to test the 100-day SMA at 19.89, followed by support at 19.50.
Conversely, if buyers step in and drive the USD/MXN above 20.50, the next key resistance lies at the year-to-date (YTD) high of 20.90, followed by the 21.00 level. A breakout above 21.00 would open the door to test the March 8, 2022 peak of 21.46.
