The Rise of the Mexican Peso: A Strong Outlook Ahead
- The Mexican Peso gains momentum after positive US and domestic automobile data.
- Judges’ actions to block controversial reforms enhance support for the MXN.
- USD/MXN breaks below the crucial 50-day SMA and tests a major rising channel’s bottom.
The Mexican Peso’s Winning Streak
The Mexican Peso (MXN) is on a six-day winning streak, strengthening across its key pairs (USD/MXN, EUR/MXN, and GBP/MXN). The rise can be attributed to a more optimistic outlook for its primary trading partner, the United States, following strong US employment data. Additionally, robust domestic data from Mexico has contributed to the Peso’s surge.
US Employment Data Boosts Confidence
In September, US Nonfarm Payrolls exceeded expectations, rising by 254K compared to the anticipated 140K increase. The Unemployment Rate also dropped to 4.1% from 4.2%, showcasing a healthy US economy and allaying concerns of a significant downturn.
Positive Signals from Mexico
On the home front, Mexico saw an increase in Automobile Production and Exports in September. Production rose by 11.71%, while exports jumped by 4.8%. However, the Jobless Rate in August slightly climbed to 3.0% from 2.9% in July.
The Peso’s Rally Amid Political Developments
The Mexican Peso is further bolstered by reduced investor apprehensions about controversial reforms proposed by former President Andres Manuel Lopez Obrador. The market views these reforms as “anti-market,” leading to a sell-off in Mexican financial assets post the Morena-led coalition’s re-election in June. The Peso had weakened by 10% in the aftermath of the election.
Despite President Claudia Sheinbaum’s general support for AMLO’s radical reform agenda, there is optimism about the reforms’ implementation under her leadership. The recent vote to delay the new judicial reforms by the Mexican Supreme Court has provided further support to the Peso.
Technical Analysis: Key Insights
The USD/MXN pair has broken below the 50-day Simple Moving Average (SMA) and is testing the lower end of a medium-term rising channel. While the medium and long-term trends remain bullish, a short-term bearish trend has emerged. A decisive break below the channel line could threaten the pair’s upward trajectory.
Traders anticipate a potential recovery from the base of the channel, with initial downside targets at 19.00 and 18.60. Monitoring the pair’s movement post-breakout will be crucial in determining its future direction.
Importance of Economic Indicators: Nonfarm Payrolls
The Nonfarm Payrolls release presents the number of new jobs created in the US, impacting market sentiment and currency valuations. A higher reading is typically bullish for the US Dollar (USD), while a lower reading has bearish implications. Understanding and analyzing such economic indicators can provide valuable insights for investors and traders.