USD/MXN: Peso pares the biggest daily slump since March ahead of Mexico inflation, US NFP

• USD/MXN takes offers to refresh intraday low, consolidates biggest daily gain in four months.
• Risk-aversion, hawkish Fed bets underpin US Dollar strength despite latest pullback amid pre-NFP anxiety.
• Mexican Peso’s repeated bounces off 17.00 tease countertrend traders amid upbeat fundamentals.
• Mexico inflation data, US employment report for June eyed for fresh impulse.

USD/MXN bulls take a breather around the intraday low of 17.20 as it positions for the top-tier data from Mexico and the US on early Friday. In doing so, the Mexican Peso (MXN) pair consolidates the biggest daily gains in three months, marked the previous day, while retreating from the highest levels in a month.

While the pre-data positioning weighs on the USD/MXN price, sour sentiment in the market and concerns favoring more rate hikes from the US Federal Reserve (Fed) put a floor under the prices.

The market’s risk aversion escalates as mostly upbeat US jobs data underpin hawkish Fed bets, even as recession fears loom and the China-linked headlines aren’t impressive. Additionally, the US-China tension is an extra burden for the sentiment, which in turn allows the US Dollar to grind higher.

Thursday’s strong US ADP Employment Change propelled the market’s bets on the Fed’s 0.25% rate hike in July to around 95%. However, However, the odds of witnessing a policy pivot have been on the spike after the US central bank paused the rate lift trajectory in July.

Talking about the data, US ADP Employment Change marked the largest one-month increase since February 2022, to 497K for June versus 228K expected and 267K prior (revised). That said, the ISM Services PMI also improved to 53.9 for the said month from 50.3 in May, versus the market expectation of 51.0. Further, the Challenges Job Cuts also slumps to 40.709K from 80.089K previous readings. However, the JOLTS Job Openings drops to 9.8M from 10.103M, compared to analysts’ estimation of 9.93M. It should be noted that the Initial Jobless Claims also rises to 248K for the week ended on June 30, versus 245K expected and 236K previous readings (revised).

Elsewhere, US Treasury Secretary Janet Yellen is in China to address “unfair practices” termed by the Biden administration per Reuters. The policymaker will meet China's Premier Li Qiang and former economy tsar Liu He, who is a close confidant of President Xi Jinping, the news said. Recently, China's Finance Ministry said, “We hope US to take 'concrete' actions to create favorable environment for healthy development of economic, trade ties between China and US,” per Reuters.

On the other hand, Mexican Consumer Confidence for May improved earlier in the day and the Oil price also remains firmer, eyeing the second consecutive weekly gain, which in turn allows the MXN to remain firmer versus the US Dollar.

Looking forward, Mexico’s Headline, Core and 12-month Inflation data for June will be crucial as Banxico stays ready to increase the benchmark interest rates if needed. On the other hand, traders will pay attention to the US Nonfarm Payrolls (NFP), expected to ease to 225K from 339K, for clear directions. Should the jobs report arrive as positive, the US Dollar can witness further upside.

Technical analysis

USD/MXN bears need to conquer the previous resistance line stretched from early June, close to 17.09 at the latest, to retake control.