Mexican Peso trims some gains with all eyes on US Nonfarm Payrolls data

• The Mexican Peso is trading moderately lower with investors bracing for the US employment reading.
• Weak US macroeconomic data and some hawkish comments by Banxico’s deputy Governor have buoyed the MXN this week.
• Technically, USD/MXN’s double top at 20.80 suggests the possibility of a deeper correction.
   

The Mexican Peso (MXN) is trading with moderate losses on Friday against the US Dollar. The USD/MXN pair ticks up after having declined for the last three days, with investors wary of betting against the US Dollar (USD) ahead of the release of November’s US Nonfarm Payrolls report at 13:30 GMT.

Data released on Thursday showed that claims for unemployment benefits in the US increased beyond expectations last week. This, coupled with the lower-than-expected increase in the ADP private-employment gauge, has been weighing on the US Dollar across the board.

In Mexico, Banxico Deputy Governor Irene Espinosa warned against too-aggressive interest-rate cuts considering that an increase in the minimum wage will exert upside pressure on inflation. This has provided some support to the MXN.

Daily digest market movers: Mexican Peso rally halts

• According to a survey from Citi Mexico, most of the economists polled see the Mexican central bank cutting interest rates by 25 basis points in December, with GDP growing by 1.5% in 2024 and by 1% in 2025.
   
• In the US, Nonfarm payrolls are expected to have increased by 200,000 in November, while the unemployment rate is also expected to tick up to 4.2%. These figures support the view of a 25 bps Fed rate cut in December and gradual easing in 2025.
   
• Earlier this week, Federal Reserve (Fed) chairman, Jerome Powell, highlighted the stress of the US economy and reiterated that the bank should be cautious about rate cuts. These comments suggest that the bank’s easing cycle might target a higher terminal rate than previously anticipated.
   
• The CME Group’s Fed Watch tool shows an almost 70% chance of a 25 bps rate cut in December and two more cuts in 2025.

Mexican Peso technical outlook: USD/MXN tests support at 20.15

The immediate bias for USD/MXN  is negative as it has retreated from the late November highs at around 20.80. However,  the pair is also facing a strong support area between 20.05 and 20.15.

The 4-hour Relative Strength Index (RSI) is in bearish territory at around 38, and the double top at 20.80 suggests the possibility of a deeper correction.

Below the 20.00 psychological level, which is also the neckline of the mentioned double top, the next target would be November´s low at 19.75. Resistances are the December 2 high, at 20.60 and November’s peak, at 20.80.

USD/MXN 4-Hour Chart