The Mexican peso falls on Tuesday amid political uncertainty

• Mexican peso on the back foot as Congress votes on controversial judicial reform.
• Morena’s supermajority is expected to pass the bill in the Senate, where they do not have a majority.
• Mexico’s unemployment rate rises in July, reflecting economic weakness.

The Mexican peso lost for a second straight day against the greenback, but recovered some ground. USD/MXN fell from around 19.98 following the release of the US Institute for Supply Management (ISM) manufacturing PMI report. USD/MXN is trading at 19.85 and gaining about 0.30% at the time of writing.

Political unrest in Mexico is weighing on the Mexican currency as Congress prepares to vote on judicial reform that foreign governments, Mexican judicial workers and multinational companies say, if passed, could threaten democracy and open the door to criminal organizations . to infiltrate the courts.

Morena’s supermajority is expected to approve the bill in the Chamber of Deputies. However, in the Senate, Morena remains slightly short of obtaining the necessary majority to amend the Constitution.

In that regard, a judge granted a stay over the weekend to prevent the proposal from being debated. The initiative has sparked a strike in the judiciary, strained relations with the United States and rattled local markets amid widespread doubts it engenders.

In July, Fitch Ratings commented that it could negatively affect Mexico’s investment appetite.

In addition, President Andres Manuel Lopez Obrador has also promoted bills to abolish autonomous bodies such as the antitrust regulator and the Institute for Transparency.

Mexico’s economic file presented data on the unemployment rate, which showed an increase in the unemployment rate, which was in line with the expected rate, although higher than in June, according to the National Statistics Agency (INEGI).

Across the border, the US ISM manufacturing PMI remained in contractionary territory, however the Employment subcomponent improved compared to July data, welcomed by investors as Federal Reserve (Fed) officials moved to touch the maximum term of employment.

Daily market reasons: Mexican peso falls as economic data confirms slowdown

• Mexico’s unemployment rate rose to 2.9 percent in July, as expected, but was higher than June’s 2.8 percent. Seasonally adjusted figures showed the unemployment rate was unchanged at 2.7%.
• Monday’s data from Mexico showed an improvement in business confidence, while business activity deteriorated further, as measured by the S&P Global Manufacturing PMI.
• Most banks expect the Bank of Mexico (Banxico) to cut rates by at least 50 basis points (bps) for the rest of 2024. That would put pressure on the Mexican currency, which has already depreciated 15.38% year-to-date (YTD).
• ISM Manufacturing PMI in August came in at 47.2, below estimates of 47.5 but above July’s 46.8. Meanwhile, the Employment subcomponent index increased from 43.4 to 46.0.
• U.S. nonfarm payrolls in August are expected to rise from 114,000 to 163,000, while the unemployment rate is expected to fall from 4.3% to 4.2%.
• Data from the Chicago Board of Trade (CBOT) suggests the Fed will cut by at least 96.5 basis points, according to the December 2024 federal funds rate futures contract.

Technical outlook: Mexican peso falls as USD/MXN climbs above 19.80

USD/MXN is partially bullish, consolidating near the 19.50-20.00 area. The Relative Strength Index (RSI) is flat, although it remains bullish, indicating that momentum is looking further up in the exotic pair.

If USD/MXN buyers clear the 20.00 figure, there are plenty of additional upside targets. The next resistance would be the YTD high at 20.22, followed by the September 28, 2022 daily high at 20.57. If these two levels are taught, the next stop would be August 2, 2022, swing high at 20.82, before 21.00.

On further USD/MXN weakness, the first support would be 19.50. A breach of the latter will expose the August 23 low of 19.02 before giving way to sellers eyeing a test of the 50-day simple moving average (SMA) at 18.65.