Mexican Peso set for strong weekly finish, eyes on upcoming Banxico meeting

• Mexican Peso gains as US Nonfarm Payrolls expand by only 150K, missing the 180K forecast.
• Weak US jobs report fuels speculation of multiple Fed rate cuts in 2024, as futures markets indicate.
• USD/MXN reacts to US labor market cooling, with the Peso hitting a two-month high and US Dollar Index falling.

Mexican Peso (MXN) extends its gains against the US Dollar (USD) in early trading during the North American session after a jobs report in the United States (US) surprisingly missed estimates, portraying a labor market that is further cooling. Traders are now disregarding the chances of the Federal Reserve (Fed) raising interest rates, speculating instead that the Fed could slash rates four times in 2024, according to money market futures. Consequently, the USD/MXN is plunging more than 0.25%, on the day, trading at 17.46.

Lately, Federal Reserve officials crossed newswires, led by Richmond Fed’s President Thomas Barkin. He said that risks of over and under-tightening exist and mentioned that he’s unsure if the Fed has reached peak rates. Meanwhile, Minnesota’s Fed President Neil Kashkari said they must keep watching data, adding that “it’s too soon to call” if another rate hike is needed.

Meanwhile, US economic data regarding the jobs market was worse than expected. October US Nonfarm Payrolls expanded by 150K, below forecasts of 180K and 140K fewer than September’s data. Additional data showed the Unemployment Rate rising above estimates, while Average Hourly Earnings ticked up compared to analysts' projections, but it was below September’s data.

The report comes following the latest Federal Reserve monetary policy decision to hold rates unchanged while acknowledging that inflation is high, the labor market tight, and growth is above the trend required to curb inflation. Despite the fact that Fed Chair Jerome Powell did not comment on anything regarding finishing the tightening cycle, investors speculate the Fed is done. They had priced 100 bps of rate cuts for the end of 2024, according to CME Fed Watch Tool.

The USD/MXN plummeted after the data fell to a two-month low at 17.28, while US Bond yields, namely the 10-year benchmark Note, plunged 17 basis points toward the 4.48% area before trimming some of its losses. The American Dollar (USD), as measured by the US Dollar Index, drops 0.81%, down at 105.29.

Recently, the Institute of Supply Management (ISM) revealed that the Non-Manufacturing PMI expanded at a 51.8 pace, suggesting that business activity is cooling compared to last month’s and market players’ forecasts.

In the meantime, Mexico’s economic calendar revealed that Gross Fixed Investment, on a monthly and annual basis, was better than expected in August compared to the prior month’s data. Next week’s calendar will feature inflation data and the Bank of Mexico (Banxico) monetary policy decision. According to Banxico’s latest minutes, policymakers emphasized the need to keep rates at current levels as they battle high inflation, above 4%. Hence, traders expect Banxico to hold rates at 11.25%.

Of note, traders should be aware of geopolitical issues after Hezbollah's leader said that “Further escalation on the Lebanese front is a realistic possibility.”

Daily digest movers: Mexican Peso rallies sharply more than 2.70% weekly against the US Dollar

• US October Nonfarm Payrolls rose by 150K, below 180K forecasts, and trailed September’s 297K.
• The Unemployment Rate in the US jumped above estimates from 3.8% to 3.9%.
• Average Hourly Earnings decreased from 4.3% to 4.1% but ticked up against 4.0% projections.
• ISM Non-Manufacturing PMI slowed from 53.6 to 51.8, missing expectations for a 53 deceleration.
• Mexico’s Gross Fixed Investment grew 3.1% monthly in August, compared to a 0.5% expansion in July. Annually based, it expanded by 32.0%, higher than the prior month’s 28.2%.
• US Initial Jobless Claims for the week ending October 28 rose by 217K, exceeding estimates and the previous week's figures at 210K and 212K, respectively.
• The ISM Manufacturing PMI dropped to contractionary territory at 46.7 in October, below forecasts and September’s 49 reading.
• Mexico S&P Global October Manufacturing PMI came out at 52.1, above September’s 49.8.
• Mexico’s Gross Domestic Product (GDP) grew by 0.9% QoQ in the third quarter on its preliminary reading, above the previous quarter and estimates of 0.8%.
• On a yearly basis, Mexico’s GDP for Q3 expanded by 3.3%, above forecasts of 3.2% but trailing the previous 3.6%.
• According to Enki Research, a firm specializing in natural disasters, the first estimates of Hurricane Otis's costs of damage in Mexico are around $10 to 15 billion.
• On October 24, Mexico's National Statistics Agency, INEGI, reported annual headline inflation hit 4.27%, down from 4.45% at the end of September, below forecasts of 4.38%.
• Mexico’s core inflation rate YoY was 5.54%, beneath forecasts of 5.60%.
• The Bank of Mexico (Banxico) held rates at 11.25% in September and revised its inflation projections from 3.50% to 3.87% for 2024, above the central bank’s 3.00% target (plus or minus 1%). The next decision will be announced on November 9.

Technical Analysis: Mexican Peso buyers regain control as USD/MXN hovers around the 100-day SMA

The USD/MXN finally plunged below the 200-day Simple Moving Average (SMA) at 17.70, extending its losses past the 50-day SMA at 17.61. With that said, on Thursday, the pair closed below those two crucial support levels, extending its slide below the September 29 daily low at 17.34, followed by a breach of the 100-day SMA at 17.30 to print a daily low of 17.28. A daily close below the 100-day SMA would expose the 17.00 psychological figure, followed by August’s 28 low of 16.69.

On the other hand, if USD/MXN buyers stepped in and reclaimed the 50-day SMA, that could form a ‘bullish piercing pattern’ two-candle pattern, which could open the door to a recovery above the 200-day SMA at 17.70.