Mexican Peso prints an 8-day high against US Dollar on risk-on mood

• Mexican Peso hovers at around 18.00, down 0.42 on upbeat market sentiment.
• Hurricane Otis's impact on the southern state of Guerrero could strain Mexico's finances.
• USD/MXN traders await the US Federal Reserve monetary policy meeting, expecting unchanged rates.

Mexican Peso (MXN) climbs against the US Dollar (USD), piercing for a moment the 18.00 figure, as the USD/MXN dived to a daily low of 17.96, but at the time of writing hovers at around the 18.00 figure, down 0.42%.

Mexico’s currency continues to remain bolstered by market sentiment, which witnessed an uptick, with Israel's offensive on the Gaza Strip staying at a lower scale than expected.

Hurricane Otis impacted the southern state of Guerrero over the weekend, likely weighing on the country’s finances, as the FONDEN – a trust created by previous Mexican government administrations to respond to natural disasters – disappeared since the beginning of President Andres Manuel Lopez Obrador administration.

In the meantime, USD/MXN traders are eyeing the release of a busy US economic schedule, highlighted by the US Federal Reserve (Fed) monetary policy meeting on November 1, which is expected to hold rates unchanged. Odds for a 25 bps increase to the Federal Funds Rate (FFR) are at 1.4%, as shown by the CME FedWatch Tool.

Daily digest movers: Mexican Peso at the mercy of the Fed, and market sentiment

• First estimates of Hurricane Otis damages stand at around 828 million dollars, according to Enki Research, a firm specializing in natural disasters.
• Mexican authorities reported that around 270,000 houses in Acapulco were affected or destroyed, while 80% of hotels were severely damaged.
• The US Dallas Fed Manufacturing Index for October plunged to -19.2, worse than September’s 18.1.
• Elevated US Treasury bond yields, particularly the 10-year benchmark note rose up five basis points to 4.89%, caps the USD/MXN drop despite overall US Dollar weakness.
• The US Dollar Index, which tracks the performance of the Greenback against six currencies, slides 0.40%, down at 106.15.
• Mexico’s economic docket would feature the release of the Fiscal Balance, Gross Domestic Product for Q3, S&P Global Manufacturing PMIs, Foreign Exchange Reserves, and Gross Fixed Investment.
• The US agenda will feature the Fed’s decision, Fed Powell’s press conference, employment data, and S&P Global and ISM Manufacturing PMIs.
• 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 buyers target the 200-day Simple Moving Average

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 18.10 at risk of being decisively broken to the downside. A daily close below the latter could pave the way for a test of the 200-day SMA at 17.72. A breach of the latter and the next support would be the 50-day SMA at 17.55. 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.