The Mexican Peso (MXN) has shown signs of resilience on Friday, posting modest gains as it turns positive on the daily chart. The US Dollar’s recent reversal has provided some support, keeping the USD/MXN pair relatively flat for the week after fluctuating around the key 20.00 level. The US Dollar itself has benefitted from a sharp recovery in US Treasury yields, adding to the pair’s volatility.
US Economic Data and Fed Rate Cut Expectations
A key catalyst for the recent movement in USD/MXN is US economic data. Thursday’s US Jobless Claims figures reinforced expectations that the Federal Reserve (Fed) may cut rates in their upcoming meeting. However, a higher-than-expected Producer Price Index (PPI) has led traders to speculate that any easing in 2024 will be gradual, limiting the scope for aggressive rate cuts. The US Dollar Index (DXY) has climbed significantly, tracking a 1% weekly increase, driven largely by the uptick in US Treasury yields. The benchmark 10-year yield has surged by 20 basis points, crossing the 4.30% mark for the first time in three weeks.
Despite these US gains, the outlook for the Mexican Peso has been less favorable. Mexican economic data released this week showed weakness in key indicators. Industrial Output for October fell 1.2%, worse than the expected 0.2% decline, while the year-on-year contraction reached 2.2%, well beyond the 0.6% expected. Additionally, November’s consumer inflation eased more than anticipated, adding to concerns that the Bank of Mexico (Banxico) could cut rates for the fourth consecutive time at its next meeting.
USD/MXN Technical Analysis: Resistance at 20.30
From a technical perspective, the USD/MXN pair remains confined below the 20.30 resistance level. After a bounce from the psychological 20.00 support zone, the pair has traded within a tight range, hovering beneath the December 5 and 10 highs. The short-term outlook appears bearish as long as the 20.30 barrier holds. A break above this resistance could shift the focus toward the 20.60 and 20.80 levels. On the downside, the 20.00 level is crucial, with a potential decline toward the 19.75 level if bears regain control.
In summary, while the US Dollar’s strength has kept the USD/MXN pair flat, Mexican economic challenges and the prospect of further rate cuts by Banxico could weigh on the Peso in the near term. Traders will closely monitor both US and Mexican economic data as they navigate the volatility ahead.
