Mexican Peso gains ground despite Mexico’s trade deficit, as US Core PCE meets expectations

• Mexican Peso extends its gains, printed a 7-day low below 18.00, on risk-on impulse.
• Mexico's trade deficit widened to $-1.481 billion in September but didn't impact Peso's rally.
• US inflation data came out in line with estimates and the market is skeptical the Fed will raise rates past the current range.

Mexican Peso (MXN) rallies against the US Dollar (USD) early in the North American session amid some risk appetite improvement despite Mexico’s worse-than-expected economic data. Inflation in the United States (US) met estimates, as revealed by the US Bureau of Economic Analysis (BEA). Even though it justifies another US Federal Reserve (Fed) hike, market participants are pricing in an end to the Fed’s tightening cycle. The USD/MXN is trading at 18.08, down 0.49%.

Mexico’s Balance of Trade in September was $-1.481 billion, worse than the consensus of $-0.700 billion, and August's $-1.377 billion, for a seasonally adjusted deficit of $-822 million. The data did not trigger a reaction in the USD/MXN, which plunged after the Core Personal Consumption Expenditures (PCE) report. The Fed’s preferred gauge for inflation showed that prices climbed in line with estimates in September on a monthly and annual basis and sponsored the USD/MXN next leg down from around 18.15 towards its daily low at 17.99. 

Market participants remain skeptical that the Fed will raise rates past the current 5.25% - 5.50% range, as demonstrated by the CME FedWatch Tool.

Daily Digest Market Movers: Mexican Peso revives, USD/MXN drops below 18.10

• Mexico’s September Trade balance printed a deficit of $-1.418 billion, worse than August’s and estimates of $-1.377 billion and $-0.71 billion, respectively.
• US PCE Index rose by 3.4% YoY, unchanged from August and in line with estimates.
• US Core PCE annually based, cooled from August’s 3.8% to 3.7% in September, but came out as expected. 
• US Q3 GDP grows at an annualized rate of 4.9%, higher than the 4.2% consensus.
• On October 24, Mexico's National Statistics Agency INEGI reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
• Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.60%.
• Earlier this week, S&P Global Manufacturing PMIs evidenced expansion in US manufacturing and service sectors during October. 
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%).

Technical Analysis: Mexican Peso climbs as USD/MXN slides below the 20-day SMA at around 18.08

The USD/MXN uptrend remains intact despite Friday’s dip below the 18.00 figure, which puts the 20-day Simple Moving Average (SMA) at 18.08 at risk of being decisively broken to the downside. A daily close below the latter could pave the way for a fall below 18.00 and a test of the 200-day SMA at 17.72. On the flip side, if the exotic pair remains above the 20-day SMA, the next resistance will emerge at the October 26 high at 18.42 before challenging last week’s high at 18.46, ahead of challenging the 18.50 figure.