Mexican peso rises as judicial reform moves ahead, US data arrives mixed

• Mexican peso rises after approval of judicial reform, with statewide vote underway to finalize constitutional change.
• Moody’s warns that the reform could threaten Mexico’s judicial independence and affect the country’s credit rating.
• Mixed US economic results reduce the likelihood of a 50bps Fed rate cut given upcoming US consumer sentiment data.

The Mexican peso rallied strongly against the greenback on Thursday after Tuesday’s approval of judicial reform. US economic data showed mixed readings, with factory inflation rising and jobs data weak. USD/MXN is trading at 19.60, down nearly 1%.

Mexico’s political unrest has died down, although approval of judicial reform is a certainty. Congresses in 32 states have begun the approval process, and once voted by a majority in 17 states, it will be declared law. Apart from this, the economic file is empty. The next economic release comes on September 18, when INEGI will release data on aggregate demand and private spending.

Regarding judicial reform, Moody’s warned of its impact on Mexico’s credit rating. One analysis points out that “the constitutional change threatens the independence and impartiality of Mexico’s judiciary” and “would undermine the quality of sovereign credit.”

The greenback remained on offer in the US after the US Bureau of Labor Statistics (BLS) revealed August producer price index (PPI) figures were mixed. At the same time, the number of Americans who filed for unemployment benefits rose in line with estimates and cleared the previous week’s reading.

After the latest US consumer and producer inflation reports, expectations for a 50 basis point (bps) rate cut by the Federal Reserve (Fed) have been reduced. The odds of a 50 bps cut are 15 percent, while a 25 bps cut is 85 percent, according to CME FedWatch Tool data.

USD/MXN will follow the consumer sentiment survey released by the University of Michigan on Friday.

Daily market moves: Mexican peso tops after judicial reform approval

• Mexico’s industrial production in July gave mixed readings, however most economists forecast an economic slowdown.
• In August, inflation fell below the 5% mark and fueled speculation about further easing from the Bank of Mexico (Banxico).
• Citibanamex’s September survey showed that Banxico will cut rates to 10.25% in 2024 and 8.25% in 2025. The USD/MXN exchange rate is forecast to end 2024 at 19.50 and 2025 at 19.85.
• The BLS revealed that the August PPI rose 1.7%, below estimates of 1.8%, and the core PPI rose from 2.3% to 2.4%, below expectations of 2.5%.
• The headline and core PPI rose compared to the previous month’s reading. PPI beat expectations of 0.1%, rose 0.2%, and core PPI rose 0.3%, from 0.2%.
• Data from the Chicago Board of Trade suggests the Fed will cut by at least 98 basis points this year, down from 108 a day earlier, according to the December 2024 federal funds rate futures contract.

USD/MXN Technical Outlook: Mexican peso rises as USD/MXN dips below 19.60

The USD/MXN uptrend remains in place on Thursday despite the ongoing correction over the past two days. Momentum has turned negative in the pair, as shown by the Relative Strength Index (RSI). This despite the approval of an unwanted judicial reform opposed by foreign investors, banks and credit agencies.

Meanwhile, USD/MXN is heading lower in the short term. The first support would be the 19.50 area. Once released, the next support will be the August 23 low of 19.02, outside the 50-day simple moving average (SMA) at 18.99.

Instead, USD/MXN needs to clear the psychological 20.00 figure for a bullish continuation. If broken, the next cap level would be the YTD high at 20.22. Next, the pair could challenge the daily high of September 28, 2022 at 20.57. If these two levels are surrendered, the next stop would be the swing high at 20.82 on August 2, 2022, before 21:00.