Mexican Peso faces headwinds as US Treasury yields rebound

• The Mexican Peso (MXN) starts the week with a 0.30% decline against the U.S. Dollar (USD), with the USD/MXN pair rising above the 17.50 level.
• Mexico's Consumer Confidence index fell in October, marking the first significant drop since July 2022, signaling growing consumer pessimism about the economic outlook.
• Market participants are looking ahead to the Bank of Mexico's (Banxico) upcoming policy meeting, where rates are expected to remain at 11.25%.

Mexican Peso (MXN) begins the week on the wrong foot against the US Dollar (USD) and loses at around 0.30%, even though market sentiment remains upbeat. A rebound in US Treasury bond yields underpins the Greenback. Consequently, the USD/MXN advances solidly, trading above the 17.50 figure amid a positive market sentiment.

Mexico’s economic docket featured Consumer Confidence in October, which slipped 0.8 points, from 46.8 to 46, revealed the National Statistics Agency (INEGI). This is the first drop since April 2022, which witnessed a contraction of 0.3, and the most significant since July 2022, when confidence dropped 1.6 points. Although the economy is expected to grow more than 3%, consumers are more pessimistic about the future. Meanwhile, USD/MXN traders brace for Thursday’s Bank of Mexico (Banxico) monetary policy meeting, with expectations that the Mexican central bank will keep rates at 11.25%.

Across the border, the US Federal Reserve’s (Fed) decision to hold rates unchanged was justified by weak PMI readings and a softer US Nonfarm Payrolls report. Nevertheless, the drop in US Treasury bond yields loosened monetary conditions after Fed officials revealed that high yields at the long end of the curve tightened monetary conditions, refraining the US central bank from raising rates further.

Daily digest movers: Mexican Peso losses a step as US bond yields underpin the USD/MXN

• The US Nonfarm Payrolls report reported the economy added 150,000 jobs in October, below estimates of 180,000, and last month’s downwardly revised 297,000.
• The ISM Manufacturing PMI dropped to contractionary territory at 46.7 in October, below forecasts and September’s 49.0 reading.
• Mexico S&P Global October Manufacturing PMI at 52.1, above September’s 49.8.
• Mexico’s Gross Domestic Product grew by 0.9% QoQ in the third quarter on its preliminary reading, above the previous quarter and estimates of 0.8%.
• On a yearly basis, Mexico’s GDP for Q3 expanded by 3.3%, above forecasts of 3.2% but trailing the previous 3.6%.
• 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, and below forecasts of 4.38%.
• Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.60%.
• 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, which remains above the central bank’s 3.00% target (plus or minus 1%). The next decision will be announced on November 9.

Technical Analysis: Mexican Peso buyers in charge, but sellers eye a recovery past the 50-day SMA

The USD/MXN daily chart portrays the pair as bearish, despite having undergone a slight recovery after diving to a new month low of 17.28 on Friday. The pair also formed a Japanese hammer candlestick pattern at Friday’s lows, although it ended the day painted red, weakening the short-term reversal signal.

If the hammer signals a turnaround, and US Dollar bulls manage to lift the pair past the 50-day Simple Moving Average (SMA) at 17.64, that could open the door to reclaiming the 200-day SMA at 17.69. On the other hand, if bears step in again and drag the exchange rate below the 100-day SMA at 17.11, a test of the 17.00 figure is on the cards.