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The Mexican Peso Stays Strong and Prepares to Fall in Value as Consumer Confidence Data Comes Out

Leon Kramer

ByLeon Kramer

Oct 6, 2023

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  • The Mexican Peso came close to testing the 200-day Simple Moving Average (SMA) at approximately 17.80.
  • The advances of the USD/MXN pair were limited by the decline in US Treasury bond yields, resulting in the pair falling below the 18.00 level.
  • If the USD/MXN exotic pair fails to breach the established support level of 17.80, the prevailing risks favor an upward trajectory.

The Mexican Peso (MXN) exhibited notable appreciation against the US Dollar (USD) in the final trading hour of the New York session, resulting in a daily closure below the significant threshold of 18.00. This development potentially paves the way for a re-evaluation of the 200-day Simple Moving Average (SMA) situated approximately at 17.80.

The USD/MXN experienced a downward trajectory due to a risk-on sentiment observed on Wall Street. The conclusion of Wednesday’s trading session witnessed substantial gains, while the decline in US bond yields exerted pressure on the US Dollar. Hence, the aforementioned exotic pair concluded the session with a drop of 0.67% in light of a combination of diverse, robust data originating from the United States.

Additionally, the money market futures displayed a need for more response toward the anticipated increase in interest rates by the United States Federal Reserve (Fed) during the forthcoming November meeting. Consequently, this scenario may facilitate a continuation of the downward trend.

The Mexican Peso Extends Its Gains Into the Late Hours of the North American Trading Session

  • The Mexican economic agenda will include the release of Consumer Confidence data, which is anticipated to align with the previous month’s reading of 46.7.
  • A risk-on impulse halted the depreciation of the Mexican Peso, although its bias has now shifted towards a bearish outlook.
  • The International Monetary Fund (IMF) has revised its growth projection for Mexico in 2023, increasing it from 2.6% to 3.2%. Additionally, the IMF has adjusted its forecast for 2024, raising it from 1.5% to 2.1%, compared to the previous estimate made in July.
  • The ADP Employment figures for the United States were reported at 89,000, falling short of the projected forecast of 153,000.
  • The US ISM Services PMI was reported at 53.6, in line with analysts’ expectations, albeit exhibiting a modest deceleration.
  • The remittances received by Mexico in August amounted to $5,563 million in US Dollars, reflecting a year-on-year growth of 8.6%.
  • According to Banxico’s September survey conducted among economists, interest rates have been projected to persist at 11.25%. Additionally, the survey indicates a forecasted decline in inflation to approximately 4.66%.
  • According to the poll above, it has been indicated that the exchange rate is projected to conclude at approximately 17.64, exhibiting a decline from its previous value of 17.75.
  • The S&P Global Manufacturing PMI for Mexico in September registered a value of 49.8, indicating a decline into contractionary territory and falling below the August figure of 51.2. This development reflects a deceleration in the country’s economy.
  • The business confidence index in Mexico experienced a marginal increase, rising from 53.7 to 53.8.
  • The financial system stability committee has indicated that Mexico’s economy may experience a deceleration as a result of intricate external shocks.
  • The Bank of Mexico, also known as Banxico, has decided to maintain its interest rates at 11.25%. Additionally, the bank has revised its inflation projections for the year 2024, increasing it from 3.5% to 3.87%. This new projection surpasses the central bank’s target of 3%, which allows for a deviation of plus or minus 1%.
  • The Government Board of Banxico emphasized the robustness of Mexico’s economy and the favorable conditions in the labor market as the primary factors contributing to inflation maintenance at its present interest rate level.
  • The unemployment rate in Mexico experienced a slight decline, moving from 3.1% in July to 3.0% in August, as the National Statistics Agency (INEGI) reported.

The Daily Closing Rate of the Mexican Peso Dropped Below 18.00

The bias towards the Mexican Peso shifted towards a bearish sentiment on Tuesday, as the USD/MXN pair exceeded the 200-day Simple Moving Average (SMA) at 17.80. Furthermore, buyers were able to regain control of the 18.00 level, establishing a new cycle high.

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Hence, it is plausible that the USD/MXN currency pair may continue its upward momentum beyond the peak observed on October 4th, reaching a resistance level near the high recorded on April 5th, approximately 18.40. This trajectory could further test the yearly low witnessed in April 2018 at 18.60. In the event of a decline below the level of 18.00 and the 20-day Simple Moving Average (SMA) positioned at 17.40, additional losses may likely ensue.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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