Mexican Peso hits four-month highs against the US Dollar

• Mexican Peso soars as mixed economic data from the United States, undermined the Greenback.
• Mexico’s Consumer Confidence deteriorates as households are concerned about the future economic outlook.
• USD/MXN tumbles toward 16.80 as sellers eye 2023’s low of 16.62.

The Mexican Peso (MXN) post decent daily gains of 0.31% against the US Dollar (USD) following last week’s US employment report and a light economic docket in Mexico. The USD/MXN continues to trade at around 16.82, at multi-month lows.

On Monday, data showed Mexico’s Consumer Confidence deteriorated in December, according to the National Statistics Agency known as INEGI. Across the border, last Friday’s Nonfarm Payrolls report for December depicted the labor market is in better shape than estimated. Nevertheless, in the near term, hiring could begin to slow down as business activity reported by the Institute for Supply Management (ISM) showed the Manufacturing PMI stood in recessionary territory, while the Services PMI clung to 50.7, at the brisk of turning contractionary.

Daily digest market movers: Mexican Peso remains firm, extending its gains against the US Dollar

• Mexico’s Consumer Confidence in December dropped slightly from 47.3 to 46.8 as consumers became more worried about the future economic outlook amongst households. In regard to the country’s outlook, consumers expect an economic slowdown, tough current conditions, sales of durable goods are expected to take a hit, as the poll showed.
• Last week’s economic data in the US was mixed. Although the economy added 216K jobs, exceeding forecasts, usually, it’s the latest piece of data that feels the pain of monetary policy tightening. Contrarily, the ISM Manufacturing and Services PMI usually lead the economy, and even though the Services PMI stood at expansionary territory, it is slowing faster than expected.
• On Saturday, the President of the Dallas Federal Reserve Bank, Lorie Logan, said the Fed shouldn’t rule out another rate hike due to the recent easing in financial conditions. She added the US central bank should consider the slow the pace of its balance sheet reduction.
• The recent meeting minutes from Banxico (the Central Bank of Mexico) indicate that the institution might start considering the relaxation of its monetary policy, albeit cautiously. Four members of the Governing Council emphasized the importance of being prudent in both evaluating and communicating any decisions regarding rate reductions. Meanwhile, one member voiced the opinion that it might be time to start discussing potential rate cuts.
• Last Tuesday, Mexico’s S&P Global Manufacturing PMI for December came out at 52.0, below November’s 52.5, suggesting the economy is slowing down amid Banxico’s tightening cycle.
• On Wednesday, Business Confidence in Mexico improved to 54.6 from 54.0 in November, although it failed to underpin the Mexican Peso, which remained weak during the session.

Technical analysis: Mexican Peso buyers remain in charge as the USD/MXN drifts lower

The USD/MXN resumed its downtrend, and it’s accelerating its pace toward testing last year’s low of 16.62. A breach of the 16.80 area would expose the 16.69 August 28 swing low, followed by the 2023 low of 16.62.

On the flip side, if sentiment shifts bullish on the US Dollar, the exotic pair could reclaim the 17.00 figure, followed by the 17.05 mark. Once those two resistance levels are surpassed, up next would be 17.20, followed by the convergence of the 50, 100, and 200-day Simple Moving Averages (SMAs) at the 17.29/41 area.

Also read: Mexican Peso Price Annual Forecast: Which factor would impact most in 2024, economics or politics?

USD/MXN Price Action - Daily Chart