USD/MXN sinks after a soft US Nonfarm Payrolls report, risk appetite improvement

• USD/MXN drops more than 1.50%, but clings to the 17.0000 psychological level.
• US jobs data came soft, thus decreasing the chances for additional tightening by the Federal Reserve.
• Upcoming economic data includes the US inflation report, Balance of Trade, and Fed speakers, while in Mexico, Consumer Confidence and inflation rate will be closely watched by Banxico.

USD/MXN erases some of its Thursday’s gains on Friday after a softer employment report in the United States (US) shruggs off presure on the Federal Reserve (Fed) to continue to tighten monetary conditions. Consequently, the US Dollar (USD) weakened, a tailwind for the Mexican Peso (MXN). The USD/MXN is trading at 17.0579, losses 1.55%, in the middle of the North American session.

Risk appetite improves, benefiting the Mexican Peso, with US equities trading up and US bond yields dropping

The USD/MXN is clinging ot its downward biased, though a daily close above 17.0000 could pave the way for further upside. Improvement on risk appetite, bolstered the MXN, as shown by US equities trading with gains, while US bond yields dropped.

On the data front, the US Nonfarm Payrolls report for July missed estimates of 200K, dipping to 187K weighs on the greenback. Consequently, the Unemployment Rate rose by 3.6^%, above forecasts of 3.5%, while Average Hourly Earnings climbed by 4.4% YoY, more than estimated. That could refrain the Fed from standing put on interest rates, despite increasing borrowing costs by 525 basis points since March 2022.

Of note, USD/MXN traders must remember the Federal Reserve is on data-dependant mode, but one piece of good news, regarding employment, inflation or growth, would not shift its stance. Most Fed officials have expressed the need to see a clear trend of easing conditions, so they can modify its posture.

In the meantime, the US Dollar Index (DXY), a measure of the buck’s value against a basket of peers, dives 0.70%, trades at 101.766, undermined by falling US Treasury bond yields. The US 10-year Treasury note is plunging eleven basis points to 4.066%, reversing most of its Thursday’

Across the border, the Mexican economic docket revealed that Gross Fixed Investment rose 4.5% MoM, above May’s 0%.

Ahead into the next week, the US economic agenda will feature July’s inflation report, the Balance of Trade, and Fed speakers as the main highlight. On the Mexican front, Consumer Confidence and inflation rate, would update its status, vigilated closely by the Bank of Mexico (Banxico), which has kept rates unchanged during the last three monetary policy meetings.

USD/MXN Price Analysis: Technical outlook

After achieving its best week since March 2023, the USD/MXN downtrend remains in play until the pair achieves a daily close above May 17 daily low at 17.4039, which could pave the way for a shift on the USD/MXN bias, exposing key resistance levels. Firstly, the 100-day Exponential Moving Average (EMA) at 17.5182, followed by the May 31 swing high of 17.7724, followed by the 18.0000 mark. Conversely, if USD/MXN achieves a daily close below the 17.0000 figure, the pair could re-test the year-to-date (YTD) Lows of 16.6238.