The Mexican peso has managed to stage a recovery from its daily lows and has turned positive for the day. This comes after a period of disappointment in Mexican economic data, which has stoked speculation of a rate cut by the Bank of Mexico (Banxico) on Thursday.
The USD/MXN currency pair has been trading within its weekly range, with attempts to move higher being capped below the 20.30 level. The Mexican peso has gained ground on the daily chart, posting slight increases on Friday, thanks to a reversal in the US dollar’s fortunes. This has left the USD/MXN pair relatively flat for the week, having fluctuated above the crucial 20.00 level earlier, when the US dollar was bolstered by a sharp rise in US Treasury yields.
Thursday’s release of US Jobless Claims figures strengthened the belief that the Federal Reserve will cut rates next week. However, the higher Producer Price Index figures have led traders to expect a very gradual easing process next year.
In contrast, Mexican data has been underwhelming this week. Industrial Output in October worsened more than anticipated, and consumer inflation in November eased more than forecast. These figures support the view that the Bank of Mexico will likely cut rates for the fourth consecutive time next week.
Daily Digest: MXN’s Struggles Amid Weak Mexican Data and Strong USD
The US Dollar Index has been on an upward trajectory, set to record a 1% increase this week, driven by higher US yields. The benchmark 10-year yield has climbed 20 basis points this week, reaching levels above 4.30% for the first time in three weeks.
US Consumer and Producer inflation picked up this week, indicating a resurgence in price pressures. This situation is likely to limit the extent of the Federal Reserve’s easing measures next year.
The CME Fed Watch tool shows that the market is almost fully anticipating a 25 bps rate cut following the December 17-18 meeting. However, for next year, the market is leaning towards only two more cuts, with the likelihood of three cuts diminishing.
In Mexico, Thursday’s data revealed that Industrial Production contracted by 1.2% in October, exceeding the market’s expected 0.2% decline. Year-on-year, the Industrial Output dropped 2.2%, instead of the forecasted 0.6%. September data had shown a 0.6% monthly increase and a 0.3% decline over the previous 12 months.
Earlier this week, Mexican consumer prices eased at a 4.55% annual rate from 4.76% in October, falling more than the market’s expected 4.59%. Similarly, the monthly CPI declined 0.44%, below the expected 0.48%, compared to 0.55% in the previous month.
Mexican Peso Technical Outlook: USD/MXN Constrained Below 20.30 Area
The USD/MXN pair has rebounded from the significant psychological support level at 20.00. However, it remains confined within its weekly range, below the December 5 and 10 high of 20.30.
As long as the 20.30 resistance holds, the pair’s short-term bias remains bearish. The double top formation at 20.80 hints at the potential for a more substantial correction.
A break above 20.30 would shift the focus towards the December 2 high of 20.60 and then towards November’s peak around 20.80. On the downside, the 20.00 level is acting as a barrier for bears. Below this, the October 24 and November 7 low at 19.75 is likely to be the next target.
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