The Mexican Peso (MXN) has seen its gains pared back following the release of softer-than-expected Consumer Prices Index (CPI) figures for November. This data has influenced market expectations regarding the Bank of Mexico’s (Banxico) potential interest rate cut next week and has consequently put a damper on the MXN’s upward trend.
The USD/MXN exchange rate has been affected by these developments. After the Mexican CPI eased more than anticipated, the USD/MXN picked up. The Mexican Peso had earlier reached levels close to the 20.00 support area as the impact of the release of robust US labor figures waned.
From a broader perspective, the USD/MXN has managed to maintain its overall bearish trend. Since peaking near 21.00 in late November, the pair has declined by around 3.30% and is now approaching the crucial 20.00 area. The US Dollar’s mild attempt at a recovery on Friday was cut short once the initial stir caused by the strong US Nonfarm Payrolls (NFP) data subsided. The increase in the unemployment rate to 4.2% from 4.1% in October has strengthened hopes that the Federal Reserve (Fed) will implement another rate cut next week, which has also helped keep the US Dollar from surging further.
This week, the spotlight will be on November’s US CPI data. While it’s unlikely to significantly change the market’s anticipation of a 25 basis points (bps) cut in December, it could prompt investors to reevaluate their rate cut expectations for 2025.
Daily Digest Market Movers:
Soft Mexican Inflation Caps the MXN Recovery: The Mexican headline CPI has slowed to a 4.55% yearly pace from 4.76% in October. This figure is below the 4.6% yearly inflation reading that was forecast by the markets and represents its weakest level in eight months. The core inflation tells a similar story, dropping to 3.58% in November from 3.8% in October, which is also below the 3.6% expected by market experts. These figures have raised hopes that the Mexican Central Bank will cut rates in December, just one day after the US Federal Reserve’s meeting.
US Labor Market Data Impact: The US Nonfarm payrolls increased by 227,000 in November, surpassing the expected 200,000 increase. Additionally, October’s data was revised upward to a 36,000 increment from the previously estimated 12,000 payrolls. However, the US unemployment rate rose to 4.2% from 4.1% in October. This has solidified the market’s belief in a Fed cut in December and restricted the US Dollar’s ability to rally. Futures markets now show a nearly 90% probability that the Fed will cut rates by 25 bps in December, up from below 70% last week, as per the CME Group’s Fed Watch tool.
Mexican Peso Technical Outlook:
The USD/MXN continues to hold its negative bias intact from the late November highs around 20.80. The pair is currently facing a strong support area between 20.05 and 20.15. The 4-hour Relative Strength Index (RSI) is in bearish territory, remaining below the 40 level. The double top formation at 20.80 indicates the potential for a more significant correction. Should the pair drop below the 20.00 psychological level, which also serves as the neckline of the double top, the next target would be November’s low at 19.75. On the resistance side, levels to watch include Friday’s high at 20.25, followed by the December 2 high at 20.60 and November’s peak at 20.80.
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