- The USD/MXN pair returned to the downward trend as the effect of the publication of good data from the US labor market faded away.
- Mexican CPI data is expected to show a cooling in inflation, which could raise selling pressure on MXN.
- Technically, the USD/MXN double top at 20.80 suggests the possibility of a deeper correction.
The Mexican peso (MXN) started the week on the same positive note as the previous week, gaining slightly in value against the US dollar. The USD/MXN pair has lost about 3.30% after peaking near 21.00 in behind schedule November and is approaching the key 20.00 area ahead of the release of last month’s inflation data.
The pair’s attempt at a delicate recovery on Friday came to a halt as the dust settled on forceful US nonfarm payrolls (NFP) data. The higher unemployment rate has increased hopes that the Federal Reserve (Fed) will cut interest rates again next week.
Monday is a busy day in the US calendar and attention will focus on Mexico’s Consumer Price Index (CPI) data. Following an raise in October, price pressures are expected to begin to decline again in November. This could raise hopes for a further interest rate cut by Banxico next week and raise pressure on the peso.
Daily summary of market changes: Mexican peso continues to rise despite forceful data from the US
- U.S. nonfarm payrolls rose by 227,000 in November, beating expectations for a gain of 200,000. October figures were revised to raise by 36,000 from the previously estimated 12,000 workers.
- However, the U.S. unemployment rate rose to 4.2% from 4.1% in October, cementing hopes for a Federal Reserve (Fed) cut in December and keeping the U.S. dollar from rising further.
- Futures markets are now pricing in a nearly 90% chance the Fed will cut interest rates by 25 basis points in December, down from less than 70% last week, according to data from CME Group’s Fed Watch tool.
- Inflation in Mexico is expected to chilly slightly on Monday, with annual CPI inflation falling to 4.59% in November from 4.76% in October. Core CPI fell to 3.6% from the previous level of 3.8%.
Mexican Peso Technical Outlook: USD/MXN Approaches Key Support at 8:00 PM
The USD/MXN pair has maintained its negative bias since behind schedule November highs around 20.80. However, the pair faces a forceful support area between 20/05 and 20/15.
The 4-hour Relative Strength Index (RSI) is in bearish territory below the 40 level, with a double top at 20.80 suggesting the possibility of a deeper correction.
Below the psychological level of 20.00, which is also the culmination of the mentioned double top, the next target will be the November minimum at 19.75. Resistance is Friday’s high at 20.25, ahead of the December 2 high of 20.60 and the November high of 20.80.
