Mexican Peso trades flat after gaining on strong jobs data

• The Mexican Peso is trading little changed on Wednesday after making gains on the previous day. 
• The Peso has been aided by stronger-than-expected Mexican jobs data and idiosyncratic factors impacting its peers. 
• Technically, USD/MXN is finding support at a major trendline as it consolidates within a broader uptrend.

The Mexican Peso (MXN) mostly trades flat in its key pairs on Wednesday after strengthening on the previous day, buoyed by lower-than-expected unemployment data from Mexico. 

Idiosyncratic factors impacted each of the Peso’s major pairs, with the key themes being increasing political instability and weaker economic data in Europe and continued expectations that the Federal Reserve (Fed) will move to cut interest rates in the US.  

Mexican Peso gains after release of Jobless data

The Mexican Peso strengthened on Tuesday after data from Mexico’s National Statistics Agency (INEGI) showed the Jobless Rate fell to 2.5% in October from 2.9% in September, well below expectations of remaining at a stable 2.9%. On a seasonally adjusted basis, unemployment fell to 2.5% from 2.7% previously. 

The Mexican Peso rose a third of a percentage point against the US Dollar (USD) to close at 20.33 on Tuesday. It was aided by a Greenback that weakened due to continued expectations that the Federal Reserve (Fed) will cut interest rates in December. A series of Fed speakers repeated broadly the same message: that they thought the US economy was in a good position and interest rates should therefore continue to fall. Lower interest rates are negative for the US Dollar (USD) as they reduce foreign capital inflows.

The Peso rose a quarter of a percentage point to close at 21.37 to the Euro (EUR) on Tuesday as the single currency faced downside pressure from heightened political risk in France, where the minority centrist government of Prime Minister Michel Barnier faces a vote of no confidence after opposition parties rejected his proposed Budget. If successful, the vote would bring down the French government and lead to political turmoil in one of the Eurozone’s key member states.

Against the Pound Sterling (GBP) the Peso closed Tuesday up two-tenths of the percent at 25.77 as a run of weak data for the UK – most recently in the form of lower-than-expected Retail Sales in October and activity data in November – led markets to price in a higher probability of the Bank of England (BoE) cutting interest rates before the end of the year. 

Technical Analysis: USD/MXN finds support from long-term trendline

USD/MXN consolidates in a range with an up-sloping trendline as a base. More broadly, the pair is rising in a channel and is in an uptrend on a medium and long-term basis. 

USD/MXN 4-hour Chart 

The pair is currently trading along support from the trendline but it will probably rise up to the top of the range at around 20.70 (red dashed line) as it continues its oscillations. 

A decisive break above the top of the range at 20.80 would be required to signal the start of a more bullish short-term trend in line with longer-term up cycles. Such a move would be likely to rally up to a target at about 21.00, where resistance will likely kick in because of its round-number and psychological significance.