Mexican Peso counterattacks as it appreciates against US Dollar after robust Nonfarm Payrolls

• Mexican Peso recovers from around weekly lows, and reclaims the 100-day SMA.
• Mexico’s Producer Price Index was softer than estimated, keeping Banxico’s hopes of easing policy next year alive.
• US Nonfarm Payrolls in November were better than foreseen, in contrast to previously released jobs data.

Mexican Peso (MXN) rallies against the US Dollar (USD) during the North American session on Friday, although data from the United States (US) showed the labor market is not as soft as suggested by previously released data during the week. Consequently, traders pared bets on rate cuts by the US Federal Reserve (Fed) for the next year while the Greenback rose. Nevertheless, the Mexican currency remains strong, as depicted by the USD/MXN trading at 17.32, losing 0.80% on the day.

Mexico’s economic docket revealed that inflation on the producer side was softer compared to October’s data, revealed the National Statistics Agency (INEGI). That reinforces the thesis that prices are slowing down, which leaves the Bank of Mexico (Banxico) officials scratching their heads as consumer inflation rises.

Across the border, the US Bureau of Labor Statistics (BLS) revealed the labor market remains strong, with the economy adding more jobs than estimated by market participants, pushing the Unemployment Rate further away from projections of the Federal Reserve.

Daily digest market movers: Mexican Peso on the offensive  despite solid US jobs report

• Mexico’s Produce Price Index (PPI) rose by 1.20% YoY in November, below October’s 1.30%. In month-over-month figures, the PPI rate plunged from 0.5% in October to -0.4% in November.
• The latest consumer inflation report in Mexico missed forecasts and exceeded October’s reading.
• Banxico’s officials recently expressed their desire to ease monetary policy, though the divergence in consumer and producer inflation could prevent a rate cut by the first quarter of 2024.
• Nevertheless, there is a dissenter as Deputy Governor Irene Espinosa pushed back and said inflationary risks remain and are growing.
• US Nonfarm Payrolls exceeded forecasts of 180K and rose by 199K in November, while the Unemployment Rate slid to 3.7% from 3.9%.
• Average Hourly Earnings, seen as a measure of inflation, grew as expected by 4%, while monthly data advanced by 0.4%, above previous month's 0.2%.
• Following the US employment report, jobs data suggests the labor market is cooling, but at a slower pace than expected by traders. Per the market’s reaction, investors were overly aggressive on the Fed rate cut expectations, with market participants pairing the Federal Reserve’s rate-cut bets for the next year. According to data from the Chicago Board of Trade (CBOT), 120 basis points of rate cuts are estimated, 20 bps less than a week ago.

Technical Analysis: Mexican Peso buyers regain control as the USD/MXN slumps below the 100-day SMA

The USD/MXN shifted gears and is sliding below the 100-day Simple Moving Average (SMA), which lies at 17.39, suggesting that sellers are in charge but they would need a daily close below that level to extend its losses. The first support level is seen at the current week’s low of 17.16, followed by the area within the 17.00/05 range.

On the other hand, if USD/MXN buyers reclaim the 100-day SMA, that could open the door to challenging the 17.50 psychological level. A breach of the latter will expose the 200-day SMA at 17.55 will be exposed, followed by the 50-day SMA at 17.67.