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USD/MXN: The Peso recovers from the two-week low towards 17.00, focus on Mexican inflation

  • The USD/MXN breaks a two-day winning streak and falls back from its highest level in fifteen days.
  • The US Labor Day holiday and mixed sentiment allow the Mexican Peso to regain bullish momentum.
  • August headline inflation in Mexico and the US ISM services PMI are the key indicators this week.

The USD/MXN pair pulls back from two-week highs and breaks a two-day winning streak, as it falls back to 17.05 during the early hours of the European session on Monday. In this way, the pair justifies the market’s doubts about the ability of the Federal Reserve (Fed) to raise rates further, while suggesting the hardline bias towards the Mexican central bank, Banxico.

The US dollar barely managed to close the week positive after a lower start as the downward revision to US Q2 GDP growth and weaker PMIs pushed dollar bulls initially, before they were released bullish inflation data and mostly impressive employment statistics.

On Friday, US Non-Farm Payrolls (NFP) rose to 187,000 in August, up from 170,000 expected and 157,000 previously (revised), while the unemployment rate marked an increase to 3.8% from 3.5%. expected by the markets and from the previous reading. Additionally, median hourly earnings also declined to 0.2% MoM and 4.3% YoY compared to 0.4% and 4.4% previously, respectively. Elsewhere, the US ISM Manufacturing PMI also impressed US dollar buyers rising to 47.6 vs. analysts’ estimate of 47.0 and 46.4 prior.

Notably, Federal Reserve Bank of Cleveland President Loretta J. Mester played down the rise in the unemployment rate to 3.8%, saying the level “remains low.” The policymaker called the US job market strong despite a recent rebalancing in her speech at an event in Germany. Regarding inflation, Mester acknowledged that progress has been made, but noted that it remains high.

Still, the latest interest rate futures readings suggest a nearly 90% chance of Federal Reserve (Fed) inaction in September, as well as declining odds of seeing one more rate hike in the future. 2024.

On the other hand, Banxico officials appear to be hawkish and thus this week’s August Mexican Headline Inflation, due for release on Thursday, as well as Wednesday’s US ISM Services PMI, they are crucial for the traders of the pair.

It should be noted that the stimulus from China and the US-China tension are additional filters, apart from the mixed data from the US, which challenges the movements of the USD/MXN.

In terms of sentiment, 10-year US Treasury yields have been falling for the past two straight weeks after rising to the highest levels since 2007, as low as 4.18%. In addition, Wall Street benchmarks have also improved in recent days, despite a weak close on Friday, while S&P 500 futures are posting slight losses at the time of writing.

Looking ahead, a light economic calendar and the US holiday could allow USD/MXN to consolidate previous weekly losses.

Technical analysis

Although a bearish resistance line from late May, around 17.20 at time of writing, caps immediate USD/MXN upside, sellers need validation of a convergence of the 21- and 50-day moving averages near 16.98-16.97, to regain control.

USD/MXN additional technical levels

Last price today 17.0568
daily change today -0.0376
today’s daily variation -0.22%
today’s daily opening 17.0944
daily SMA20 16.9814
daily SMA50 16.9721
daily SMA100 17.3048
daily SMA200 18.0648
previous daily high 17.2025
previous daily low 16.9727
Previous Weekly High 17.2025
previous weekly low 16.6945
Previous Monthly High 17.4274
Previous monthly minimum 16.6945
Fibonacci daily 38.2 17.1147
Fibonacci 61.8% daily 17.0605
Daily Pivot Point S1 16.9773
Daily Pivot Point S2 16.8601
Daily Pivot Point S3 16.7474
Daily Pivot Point R1 17.2071
Daily Pivot Point R2 17.3197
Daily Pivot Point R3 17.4369

Source: Fx Street

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