Mexican peso weakens amid rising USD, eyes on Sheinbaum's inauguration

• Mexican Peso drops as the market mood shifts sour as Iran attacks Israel.
• Traders await President-Elect Claudia Sheinbaum’s inaugural remarks.
• Stronger than expected US JOLTS data and Powell’s comments support a bullish bias in USD/MXN.

The Mexican Peso loses some ground versus the US Dollar on Tuesday as the Mexican Congress begins its General Session ahead of President-Elect Claudia Sheinbaum's swearing-in ceremony. The exotic pair advances following Middle East headlines suggesting an Iranian missile attack on Israel. The USD/MXN trades at 19.70, up 0.15%.

Wall Street reflects a downbeat market mood due to heightened geopolitical risks. This sparked flows toward the Greenback due to its safe-haven status, which was detrimental to the Peso’s emerging market status.

Mexico’s economic docket remains absent, with traders awaiting remarks from President Claudia Sheinbaum as she takes office. Across the north of the border, the US schedule featured the release of the August JOLTS report, which was better than expected and exceeded the July number.

The Institute for Supply Management (ISM) revealed the September Manufacturing PMI, which remained in contractionary territory but was unchanged compared to August.

On Monday, Federal Reserve (Fed) Chair Jerome Powell revealed that the central bank is in no rush to lower borrowing costs while foreseeing 50 basis points of easing toward the end of 2024.

Given the backdrop, the USD/MXN is expected to remain upwardly biased after Powell resisted expectations of aggressive easing by the Fed.

Daily digest market movers: Mexican Peso drops on geopolitical risks

• Mexican political turmoil eases as market participants prepare for the change of president on October 1, a bank holiday in Mexico.
• According to the swaps markets, Banxico is expected to lower borrowing costs by 175 bps by the end of 2025.
• The US Department of Labor revealed that the August Job Openings & Labor Turnover Survey (JOLTS) increased from 7.711 million to 8.04 million, exceeding estimates of 7.655 million.
• The ISM Manufacturing PMI in September rose by 47.2, unchanged from the previous reading, but it missed estimates of 47.5.
• Last week Atlanta Fed President Raphael Bostic commented that he will closely monitor jobs data to assess the Fed's policy stance. He indicated that he is open to cutting rates by 50 basis points (bps) while acknowledging that he is not yet ready to declare victory on inflation.
• Market participants have put the odds of a 25 bps cut at 61.6%. According to the CME FedWatch Tool, the chances for a larger 50 bps cut diminished to 38.4%.

USD/MXN technical analysis: Mexican Peso falls as USD/MXN rises above 19.75

The USD/MXN uptrend remains intact and resumed for the fifth consecutive day, with buyers gaining momentum. The Relative Strength Index (RSI) shows that bulls are in charge. This means that the exotic pair could test higher prices in the near term.

If USD/MXN clears the psychological 20.00 figure, the next resistance would be the YTD peak of 20.22. Further strength will expose the September 28, 2022, high of  20.57, followed by the 21.00 mark.

Conversely, If USD/MXN drops below 19.50, the next support would be the September 24 swing low of 19.23 before the pair moves toward the September 18 low of 19.06. Once those levels are surpassed, the 19.00 figure emerges as the following line of defense.