Mexican Peso soars against US Dollar amid weak US data before Fed’s decision

• Mexican Peso buyers are in charge after the USD/MXN slump below the 18.00 figure.
• Mexico's Business Confidence improved in October, rising to 54 from September's 53.8.
• Weak US economic data, including lower-than-expected ADP Employment Change and a drop in ISM Manufacturing PMI, put pressure on the USD.
• Traders brace for US Federal Reserve monetary policy decision around 18:00 GMT.

The Mexican Peso (MXN) gathered traction against the US Dollar (USD) on Wednesday as market sentiment shifted positively due to a tranche of weaker-than-expected economic data from the United States, which weighed on the Greenback (USD). Across the border, Mexico’s Business Confidence improved, though it wasn’t the reason behind the Peso's strength. Therefore, the USD/MXN is falling 0.74%, trading at 17.90, well below the psychological 18.00 figure.

The US economic docket was packed on Wednesday. First, the ADP Employment Change revealed by Automatic Data Processing (ADP) showed the economy adding 113K private jobs, above September’s 89K but missing estimates of 150K.

Recently, the Institute of Supply Management (ISM) announced that October’s Manufacturing PMI witnessed a drop below the 50 contraction/expansion midline, at 46.7 for the previous twelve months in a row, below the consensus and September’s 49.0 reading. The ISM report revealed that prices paid by producers are climbing, putting the US Federal Reserve (Fed) under pressure to continue tightening interest rates to curb stubbornly high inflation in exchange for harming the economy.

In other data, the US Treasury Department announced its quarterly refunding, with auctions increasing less than expected, sparking a rally in US bonds.

After the data, the US 10-year Treasury bond yield plunged 15 basis points, from 4.935% to 4.787%, while the US Dollar Index (DXY) – a gauge of the buck’s value against a basket of six currencies – dropped from the daily high of 107.09 to 106.66, losing 0.04%.

Additional data from the US Department of Labor revealed that job openings in September rose by 9.553 million, above estimates of 9.25 million and August’s 9.497 million vacancies reported a month ago.

Aside from this, Mexico’s Business Confidence in October rose to 54 from September’s 53.8, but the main headlines are around Acapulco’s tragedy after Hurricane Otis. Mexican President Lopez announced a recovery plan, including tax breaks, financial assistance and social welfare payments. The Mexican Finance Minister said that 61 billion pesos in investment would be required for Acapulco.

Daily digest movers: Mexican Peso rallies sharply as the USD/MXN falls off cliff below 17.95

• US ADP Employment Change in October climbed to 113K, better than the previous month, but missed forecasts of 150K.
• The ISM Manufacturing PMI dropped to recessionary territory at 46.7 in October, below forecasts and September’s 49 reading.
• September’s JOLTs job report showed openings rose by 9.553 million, above forecasts of 9.25 million, and August’s 9.497 million.
• Mexico’s Business Confidence in October improved to 54 from 53.8.
• 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 3.3%, above forecasts of 3.2% but trailing the previous 3.6%.
• According to Enki Research, a firm specializing in natural disasters, the first estimates of Hurricane Otis's damages stand at around $10 to 15 billion dollars.
• Mexican authorities reported that around 270,000 houses in Acapulco were affected or destroyed, while 80% of hotels were severely damaged.
• The US agenda will feature the Fed’s decision and Chair Jerome Powell’s press conference.
• 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%.
• 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%). The next decision will be announced on November 9.

Technical Analysis: Mexican Peso buyers target the 200-day Simple Moving Average

The USD/MXN uptrend is at the risk of being reversed as the exotic pair plunged below 18.00, leaving the 20-day Simple Moving Average (SMA) standing behind at 18.10. The risk is rising that the 200-day SMA at 17.72 is about to be tested.

A breach of the last and subsequent support would be the 50-day SMA at 17.58. On the flip side, USD/MXN buyers must reclaim the 18.00 psychological figure to have a chance of reclaiming the 20-day SMS at 18.10 before targeting the October 26 high at 18.42 before challenging last week’s high at 18.46, ahead of the 18.50 figure.