Mexican peso post gains as markets eye Sheinbaum’s inauguration

• The Mexican peso strengthens to 19.60 against the greenback, supported by anticipation ahead of Claudia Sheinbaum’s Oct. 1 inauguration.
• Business confidence for September, expected on October 2, could mark the fourth consecutive month of improvement.
• Despite gains in the peso, the US dollar index is up 0.20% as stronger US economic data supports the greenback.

The Mexican peso starts the week on top with a decent 0.30% gain against the greenback amid a subdued economic record in Mexico. The most important event will be on October 1, when President-elect Claudia Sheinbaum takes over from incumbent President Andres Manuel Lopez Obrador. USD/MXN is trading at 19.60, below the opening price, after hitting a daily high of 19.73.

Mexico’s schedule will be light on Monday, but it will light up on Tuesday, October 1, when Claudia Sheinbaum is inaugurated. On October 2, Business Confidence for September will be released, although there are no estimates. It could continue to improve for a fourth consecutive month after the index fell to 52.9. Since then, confidence has improved for three consecutive months.

Market participants will be paying attention to Sheinbaum’s message on the state of the law, economic and fiscal commentary.

North of the border, the Chicago Fed’s index of national activity beat estimates and the August number, indicating that conditions are improving and the economy remains solid.

Recently, comments by Atlanta Fed President Raphael Bostic revealed that he will be watching jobs data to gauge the Fed’s policy stance. He added that he was open to cutting rates by 50 basis points (bps), although that would depend on jobs data. Bostic admitted he is not ready to declare victory over inflation.

Even as USD/MXN prints losses, the greenback is broadly strengthening, as shown by the US Dollar Index (DXY), which rose 0.20% to 100.61.

Daily market reasons: Mexican peso recovers despite strong Chicago PMI data

• Mexican political unrest is easing as market participants prepare for the change of president on October 1, a bank holiday in Mexico.
• Banxico is expected to cut borrowing costs by 175 bps by the end of 2025, according to swap markets.
• The Chicago Fed’s national activity index, also known as the Chicago PMI, improved for the third month in a row, rising to 46.6 and eclipsing estimates and data from August.
• The latest report on the price index for personal consumption expenditures (PCE) was mixed. In August, headline inflation rose 2.2% from a year earlier, down from 2.5% and a tenth lower than the consensus estimate.
• In contrast, as expected, core PCE rose modestly from 2.6% to 2.7% for the same period.
• Market participants pegged the odds of a 25bps cut at 56.4%, up from 46.7% a day ago. The odds of a cut of more than 50 bps are 43.6 percent, according to the CME FedWatch tool.

USD/MXN Technical Analysis: Mexican peso recovers as USD/MXN slips below 19.65

USD/MXN remains bullishly biased, although price action has moved sideways as traders remain uncertain about Sheinbaum’s message. The Relative Strength Index (RSI) remains bullish, although short-term sellers are stepping in.

If USD/MXN breaks below 19.50, the next support would be the September 24 low of 19.23 before the pair heads to the September 18 low of 19.06. Once these levels are exceeded, the 19.00 figure appears as the next line of defense.

Conversely, for a bullish retracement, USD/MXN should break above the September 27 high at 19.75, which once removed will expose the 20.00 threshold. Once these levels are surrendered, the year-to-date (YTD) high of 20.22 will be the next stop.