The Mexican peso is strengthening after bullish data and blocking judicial reforms

The Mexican peso is rising after solid U.S. and domestic auto data that suggests good export prospects.
Actions by judges to block contentious judicial reforms further support MXN.
USD/MXN breaks the key 50-day SMA and tests the bottom of the main ascending channel.

The Mexican peso (MXN) strengthened for the sixth straight day on Monday, gaining on all three key pairs (USD/MXN, EUR/MXN and GBP/MXN). The catalyst for growth is a combination of a more favorable outlook for key trading partner the United States (US), following better-than-expected US employment data, as well as recent solid domestic data from Mexico.

Data released on Friday showed that the U.S. nonfarm payroll (NFP) rate in September far exceeded expectations, rising by 254,000 when economists expected only an augment of 140,000, according to data from the Bureau of Labor Statistics (BLS). ). Additionally, the unemployment rate dropped to 4.1% from 4.2% when markets feared the opposite. Overall, the data showed that the US economy remains in good shape, allaying fears of a difficult landing.

Meanwhile, in Mexico, both car production and exports increased in September. Production increased by 11.71% from 8.30% in the previous month, and exports by 4.8%, from 1.7% in August. That said, according to data from the Instituto Nacional de Estadistica y Geografia (INEGI), Mexico’s unemployment rate in August was 3.0%, above July’s 2.9%.

Mexican peso rises as concerns over Sheinbaum fade, judges block modern rules

The Mexican peso is further supported by easing investor concerns over radical reforms proposed by former President Andres Manuel Lopez Obrador (AMLO). Many investors consider the reforms to be “anti-market”. This triggered a selloff of Mexican financial assets after his Morena-led coalition was re-elected in June. He was also partly responsible for weakening the peso by 10% in the months after the election.

Although modern president Claudia Sheinbaum has stated that she supports AMLO’s radical reform agenda in principle, markets appear to be more bullish about their implementation under her direction, according to Christian Borjon Valencia, an FXStreet analyst.

The first key reform was passed at the end of AMLO’s term in September. It calls for electing judges, not appointing them. He was sharply criticized for undermining the independence of the judiciary and, as a result, deterring potential foreign investors who were key to the development of Mexico as a nearshoring destination.

However, the Mexican peso appreciated tardy last week after Mexico’s Supreme Court voted to delay the implementation of modern judicial reforms so it can re-examine and possibly make changes to the modern laws. Their move was based on the legal principle that laws should not risk undermining the independence of the judiciary.

Over the weekend, the National Electoral Institute (INE) challenged a further brake on the implementation of AMLO’s judicial reforms, this time by several district judges. According to El Financiero, INE asked the Federal Electoral Court (TEPJF) to lift the blockade that aims to prevent the election of modern judges scheduled for June 1, 2025.

Technical Analysis: USD/MXN Breaks Below 50-Day Moving Average

USD/MXN breaks below the 50-day plain moving average (SMA), a key line in the sand for traders, and tests the bottom of a medium-term rising channel.

USD/MXN daily chart

USD/MXN is expected to find support at the base of the channel, there is a chance it will bounce back and start rising again. Medium and long-term trends are still bullish, and given the technical analysis principle that “the trend is your friend”, the chances of recovery and continuation are higher.

However, the short-term trend is down and the pair has now broken below the 50-day SMA, a key level and the first obstacle to further declines. A decisive breakout from the channel could threaten the medium-term uptrend in USD/MXN.

A decisive breakout would be characterized by a longer than average bear candle that broke clearly below the channel line and ended near its low. Such a break would then likely occur downward to an initial downside target of 19.00 (the August 23 round low) and then 18.60, the 100-day SMA.