Mexican Peso bounces back after US election shockwave

• Mexican Peso recovers but remains volatile; USD/MXN surged to yearly high of 20.80 before retreating.
• Trump’s tariff threats keep Mexican markets on edge; judicial reform ruling threatens the state of law.
• Fed's anticipated rate cut may further influence USD/MXN direction in the coming days.

The Mexican Peso recovers some ground against the Greenback after hitting a two-year low. Yet it treads water as investors digest former President Donald Trump’s victory in the US election. At the time of writing, the USD/MXN trades at 20.09, virtually unchanged.

Mexico’s economic docket remained absent, though the day's highlight was the Supreme Court's discussion of Judge Juan Luis González Alcántara Carranca's proposal to invalidate some parts of the judicial reform bill approved by the ruling party, Morena, at the Congress.

The Supreme Court discussed the Gonzalez project and needed at least eight votes for its approval. Nevertheless, seven magistrates voted in favor, and four voted against it. This means the judicial reform approved in September remains in force, and the first election of judges and magistrates will be in June 2025.

Aside from this, the US presidential election overshadowed most news around the financial markets. The Republican candidate, former President Donald Trump, won the 2024 election with at least 277 Electoral College votes and led the red sweep, with the Republicans obtaining the majority in the Senate and possibly in the House of Representatives.

The USD/MXN remained volatile during the session, which began with the exotic pair rallying to new yearly highs of 20.80 before retreating somewhat to current exchange rates. Trump’s harsh rhetoric against Mexico keeps Peso holders nervous. He stated that he would impose 25% tariffs on all imports from Mexico if the government failed to dismantle drug cartels.

The US economic docket remains empty during the day. The Federal Reserve (Fed) began its two-day meeting that would end on Thursday. The Fed is expected to lower rates by 25 basis points (bps) to the 4.50%-4.75% range. After that Fed Chair Jerome Powell would host his usual press conference.

Daily digest market movers: Mexican Peso falls following US election results

• The USD/MXN remains adrift from political turmoil in Mexico after the approval of the controversial judiciary reform.
• Analysts see Mexico’s inflation moderating in October, according to Reuters.
• They project the Consumer Price Index (CPI) in October at 4.73% above the prior month’s 4.58% YoY. However, core CPI is expected to decrease for the 21st straight month to 3.85% from 3.91%.
• On Tuesday, the US economic schedule revealed that the Balance of Trade deficit widened while business activity cooled slightly.
• S&P Global revealed that October’s service activity dipped, while the Institute for Supply Management’s (ISM) Services PMI improved for the same period.
• Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 49 bps of Fed easing by the end of the year.

USD/MXN technical outlook: Mexican Peso remains on the defensive despite trimming earlier losses

The USD/MXN uptrend remains in play despite the pair trimming some of its earlier gains. However, buyers need to reclaim the 20.50 psychological figure if they would like to re-test two-year highs of 20.80. In that outcome, and once that resistance level is cleared, the next stop would be 21.00. A breach of the latter will expose 22.00, followed by the November 26 swing high of 22.15.

Conversely, if USD/MXN drops further, the first support would be the 20.00 figure. Once surpassed, the next stop would be the October 24 daily low of 19.74, ahead of the 50-day Simple Moving Average (SMA) at 19.66. Once those levels are surpassed, the next support would be the October 4 cycle low of 19.10.