- 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.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
