Mexican Peso pares loses as the US Dollar rally falters

• The Mexican Perso regains lost ground and approaches 20.00 as the US Dollar's recovery loses steam. 
• Soft Mecican CPI data has increased hopes of a 25 bps rate cut next week and is weighing on the MXN.
• Technically, USD/MXN’s double top at 20.80 suggests the possibility of a deeper correction.
   

The Mexican Peso (MXN) is practically flat in the daily chart as the  US Dollar (USD) recovery lost steam ahead of Tuesday's New York session opening. A somewhat sourer market sentiment has been supporting the safe-haven Greenback, while the MXN remains weighed by the weak Mexican inflation data seen on Monday.

The US Dollar drew some support with investors focusing on the US Consumer Prices Index (CPI) release, due on Wednesday. The market consensus hints toward a sticky inflation reading, which endorses the view of a shallow Federal Reserve’s (Fed) easing cycle in 2025.

In Mexico, the soft consumer inflation data has countered the hawkish comments from Banxico Deputy Governor Espinosa, boosting hopes that the bank will cut rates by 25 basis points again next week. 

Daily digest market movers: Mexican Peso rally loses momentum

• The Mexican seasonally adjusted Consumer Confidence Index has deteriorated to 47.4 in November, from 49.4 in October. although the impact on the MXN has been muted,
   
• On Monday, Consumer Inflation eased to 4.55% in the last twelve months in Mexico, down from 4.76% in the previous month. The market was expecting a 4.59% reading.
   
• Likewise, the core CPI dropped to 3.58% year-on-year from 3.8%, below the market consensus of a 3.6% reading.
   
• These figures boost hopes that the Bank of Mexico will cut rates by 25 bps for the fourth consecutive time after their December 19 meeting.
   
• In the US, The main focus is Wednesday’s CPI data. Yearly inflation is expected to have ticked up to 2.7% in November, from 2.6% in October. The core CPI, more relevant from the monetary policy perspective, is seen steady at 3.3%.
   
• On Friday, US Nonfarm payrolls showed a 227,000 increase in November, beating expectations of a 200,000 rise. October’s data was revised to a 36,000 increment from the previously estimated 12,000 payrolls.
   
• The US Unemployment Rate, however, increased to 4.2% from 4.1% in October,  which cemented hopes of a Federal Reserve (Fed) cut in December, and kept the US Dollar from rallying further.
   
• Futures markets are now pricing an 85% chance that the Fed will cut rates by 25 basis points in December, up from below 70% last week, according to data from the CME Group’s Fed Watch tool.

Mexican Peso technical outlook: USD/MXN recovery remains capped below 20.27

The USD/MXN has found support at the 20.00 support area to pare previous losses, although it remains capped below the December 6 high at 20.27 so far.

Technical indicators are mixed, with the 4-hour Relative Strength Index (RSI) still in bearish territory below the 50 level. From a broader perspective, the bearish trend remains intact, with the double top at 20.80 suggesting the possibility of a deeper correction.

Immediate resistance is at the mentioned December 6 high at 20.27, ahead of the December 2 high at 20.60 and November’s peak at 20.80. On the downside, the 20.00 psychological level is the neckline of the mentioned double top ahead of November’s low, at 19.75.

(This story was corrected on December 10 at 11:55 GMT to say, in the technical analysis section, that the December 6 high was at 20.27, not 2.27.)
 

USD/MXN 4-Hour Chart