Mexican Peso treads water ahead of crucial economic figures

• Mexican Peso maintains a negative tone as the USD/MXN hovers below the 200-day SMA.
• Mexico's economic data will reveal inflation figures on Thursday, widely expected to rise, which could prevent Banxico from easing policy.
• USD/MXN traders are eyeing important US jobs data ahead of the important Nonfarm Payrolls on Friday.

Mexican Peso (MXN) falls on Tuesday, extending its losses against the US Dollar (USD) in the early morning North American session after the USD/MXN briefly tested the 200-day Simple Moving Average (SMA), a critical resistance level. Nevertheless, the pair retraced somewhat, though it remains trading in the green at around 17.47, gaining 0.14% on the day.

Mexico’s economic calendar remains light on Tuesday, but it will gather some pace on Wednesday, with the release of Consumer Confidence for November, after October’s data printed 46. If confidence slips below the prior month’s figure, it would be the third straight reading that Mexican households are shifting pessimistic on the economic outlook. On Thursday, the National Statistics Agency, known as INEGI, will reveal inflation for November, with most economists expecting a higher rate than in October. That could prevent the Bank of Mexico (Banxico) from easing policy, despite recent comments by Governor Victoria Rodriguez Ceja and Deputy Governor Heath.

Aside from this, the Mexican currency remains stressed as market sentiment turns sour. The financial markets narrative suggests traders had become overly optimistic about rate cuts by the Federal Reserve (Fed). Market participants are awaiting a tranche of US labor data. On Tuesday, the JOLTs report is expected to show the jobs market remains tight, followed by Wednesday’s ADP Employment Change and Thursday’s jobless claims, ahead of Friday's crucial Nonfarm Payrolls report.

Daily digest movers: Mexican Peso remains weak as traders await Mexico’s inflation report

• Banxico revised economic growth upward from 3% to 3.3% for 2023 and projects the economy will rise 3% in 2024, from 2.1% previously forecast.
• Regarding inflation prospects, the Mexican central bank foresees headline inflation at 4.4% in Q4 2023 (5.3% for core), while at the end of 2024, it is estimated at 3.4% (3.3% for core). The central bank forecasts headline and core inflation not to hit the 3% target imposed by the institution until 2025.
• The Federal Reserve's favorite inflation gauge in October, the Core PCE Price Index rate softened from 3.7% to 3.5% YoY. Moreover, headline PCE inflation dropped from 3.4% to 3.0% YoY for the same twelve-month period.
• On November 27, Banxico’s Deputy Governor, Jonathan Heath, commented that core prices must come down more, adding that one or two rate cuts may come next year, but “very gradually” and “with great caution.”
• Mexico's annual inflation increased from 4.31% to 4.32%, while core continued to ease from 5.33% to 5.31%, according to data on November 23.
• A Citibanamex poll suggests that 25 of 32 economists expect Banxico's first rate cut in the first half of 2024.
• The poll shows “a great dispersion” for interest rates next year, between 8.0% and 10.25%, revealed Citibanamex.
• The same survey revealed that economists foresee headline annual inflation at 4.00% and core at 4.06%, both readings for the next year, while the USD/MXN exchange rate is seen at 19.00, up from 18.95, toward the end of 2024

Technical Analysis: Mexican Peso weakens further, as the USD/MXN hovers around the 200-day SMA

The USD/MXN popped and printed a three-week high of 17.56, piercing the 200-day SMA at 17.56, before retracing below the 17.50 area, with bulls taking a breather, as volatility continues to pick up. A decisive breach above the 200-day SMA could open the door to challenging the 50-day SMA at 17.69, ahead of the May 23 swing high at 17.99.

On the other hand, if the exotic pair fails at the 200-day SMA, that could pave the way to challenge the 100-day SMA at 17.37. The next demand zone would be the December 4 daily low of 17.16