Home Forex The Mexican peso against the US dollar, trapped in key technical levels

The Mexican peso against the US dollar, trapped in key technical levels

by SuperiorInvest


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  • The Mexican peso is steady against the US dollar as US jobs data improves, but the housing outlook is mixed.
  • A drop in U.S. jobless claims suggests the economy remains resilient and is strengthening the U.S. dollar.
  • USD/MXN traders await other Fed speakers, Mexican retail sales on Friday.

The Mexican peso (MXN) was virtually unchanged against the currency American dollar (USD) after the mixed tranche economic data from the United States (US) and traders cutting bets on a Federal Reserve (Fed) rate cut, which is keeping dollar (USD) supply across the board. It has to be said that USD/MXN is trading at 17.18, up 0.07%, and trapped in a strong support and resistance levels, with the 50-day simple moving average (SMA) at the bottom and the 200-day SMA at the top.

The U.S. Bureau of Labor Statistics (BLS) revealed that jobless claims last week rose more slowly than previous data and expectations. The press portrays a tight labor market. Meanwhile, the US Department of Commerce (DoC) released data on construction starts and building permits, which were mixed and failed to keep USD/MXN positive. Coming up on Thursday, Atlanta Fed President Raphael Bostic’s comments make their way into the media.

Daily market roundup: Mexican peso remains firm despite mixed US economic data

  • The latest Initial Jobless Claims report for the week ended January 12 revealed a decline to 187,000, below both the previous week’s numbers and the consensus estimate of 207,000. This suggests that the labor market remains tight.
  • On the labor market, the Federal Reserve’s latest Beige Book, released Wednesday, painted a more nuanced picture, saying “almost all counties reported one or more signs of a cooling labor market,” suggesting some emerging signs of a slowdown in employment growth. across different regions.
  • US housing data has presented a mixed picture recently. Building permits rose 1.9% to 1.495 million, up from 1.467 million in November and beating the forecast of 1.48 million. On the other hand, Housing Starts fell, from 1.525 million in November to 1.46 million in December, a decrease of -4.3%.
  • The strongest catalyst this week was Federal Reserve Governor Christopher Waller’s speech: “There is no reason to move as fast or cut as fast as in the past.” That kept investors in check despite support for rate cuts if inflation actually eases.
  • In addition, December’s retail sales report and industrial production fueled speculation that the US economy is likely to grow by 2.4% in the fourth quarter of 2023, according to Atlanta’s HDPNow model. That prompted a reaction from Fed Funds Rate ( FFR ) traders who cut their bets on a 2024 rate cut from 175 basis points to just 150.
  • A lack of data in Mexico is forcing traders to rely on the latest inflation data, which came in slightly higher than expected in headline inflation, but core data suggested the Bank of Mexico (Banxico) did a good job of containing price increases after raising rates to 11 .25%. .
  • Although the December meeting minutes from the Banxico (Central Bank of Mexico) suggest that the central bank may consider easing its monetary policy, December’s inflation report could hinder any move toward policy easing.
  • Analysts at Standard Chartered noted: “We expect the key interest rate to be cut to 9.25% by the end of 2024, although an official downward revision of the output gap could open the door to more aggressive rate cuts.”
  • On Jan. 5, a Reuters poll suggested the Mexican peso could weaken 5.4% to 18.00 per US dollar in the 12 months to December.

Technical Analysis: The Mexican peso remains firm as USD/MXN hovers around 17.20

The daily chart of USD/MXN remains neutral to biased to the upside, but failure to decisively break the 200-day SMA (Simple Moving Average) at 17.37 worsened the decline below the 17.20 area. A breach of the 50-day SMA at 17:17 would pave the way to challenge the January 12 low of 16.82. Further decline is seen at the January 8 low of 16.78. Once these levels are broken, the next level of demand would be the August 28 cycle low of 16.69, ahead of last year’s low of 16.62.

On the downside, if buyers reclaim the 17:20 area, it could open the door to a test of the 200-day SMA at 17:37. After a break, further resistance appears at the 100-day SMA at 17.41, ahead of the December 5 high at 17.56, before testing the May 23 high of 17.99.

USD/MXN Price Action – Daily Chart

Frequently asked questions about Banxico

The Bank of Mexico, also known as Banxico, is the country’s central bank. Its mission is to preserve the value of Mexico’s currency, the Mexican peso (MXN), and to determine monetary policy. To this end, its main objective is to keep inflation low and stable within target levels – at or near its 3% target, which is the middle of the tolerance band between 2% and 4%.

Banxico’s main tool for managing monetary policy is setting interest rates. When inflation is above target, the bank tries to tame it by raising rates, making it more expensive for households and businesses to borrow money, thus cooling the economy. Higher interest rates are generally positive for the Mexican peso (MXN) as they lead to higher yields, making the country a more attractive place for investors. Conversely, lower interest rates tend to weaken the MXN. A key factor is the rate differential against the USD, or how Banxico is expected to set interest rates relative to the US Federal Reserve (Fed).

Banxico meets eight times a year and its monetary policy is largely influenced by the decisions of the US central bank (Fed). Therefore, the central bank’s decision-making committee usually meets a week after the Fed. In doing so, Banxico responds to and sometimes anticipates monetary policy measures set by the Federal Reserve System. For example, after the Covid-19 pandemic, before the Fed raised rates, Banxico was the first to do so in an effort to reduce the chances of a substantial weakening of the Mexican peso (MXN) and prevent capital outflows that could destabilize the country.

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