USD/MXN edges high following last week’s mixed US NFP, traders eye US CPI

• July’s Nonfarm Payrolls came in at 187K, below the expected 200K. However, Average Hourly Earnings increased to 4.4% YoY, hinting at possible wage pressure.
• Michelle Bowman hints at further rate hikes to control inflation. Conversely, New York Fed President John Williams suggests rate cuts could begin in early 2024.
• Commerzbank estimates the USD/MXN would hit 17.60 on June 2024 and the 18.00 mark by the December of the same year.

USD/MXN recovers some ground on Monday, still trading off the day’s highs of 17.1505, and holds above its opening price by 0.03%. At the time of writing, the USD/MXN exchanges hands at 17.0649 after hitting a daily low of 17.0220.

USD/MXN benefits from the hawkish comments of Fed’s Bowman and also from the rise of UST bond yields

US equities are trading in the green following a mixed US jobs report last Friday. Even though July’s Nonfarm Payrolls coming below estimates of 200K at 187K shows the labor market is cooling, Average Hourly Earnings (AHE) ticking from 4.2% to 4.4% YoY, shows that wage pressure could reignite a rise in inflation, which, would be revealed by the US Department of Labor on August 10.

Estimates for the Consumer Price Index (CPI) in the United States (US) depict inflation falling to 3% from 3.3% in June, while Core CPI, which strips out volatile items, is estimated to decelerate to 4.7% YoY, from 4.8% in June.

The USD/MXN uptick on Monday is courtesy of hawkish comments by Michelle Bowman, who said the Fed would likely need to lift rates further to bring down inflation. On the dovish side of the spectrum, the New York Fed President John Williams noted that rate cuts could begin in early 2024,  depending on economic data and if the inflation trend continued to edge lower.

The US Dollar Index (DXY), a gauge of the buck’s value vs. a basket of six peers, clings to gains of 0.09% at 102.100, a tailwind for the USD/MXN. One of the reasons behind the US Dollar (USD) strength is that US Treasury bond yields are recovering some ground, with the US 10-year benchmark note rate at 4.082%, up two bps.

On the Mexican front,  the economic docket reported Consumer Confidence for July at 46.2, exceeding forecasts of 44.9 and above June’s upward-revised figure of 45.3. Ahead of the week, Mexico’s CPI will be revealed on August 9. Forecasts for CPI stand at 4.78% YoY, while for month-over-month, is expected at 0.48%. Softness on inflation data would prevent the Bank of Mexico (Banxico) from tightening conditions after three successive meetings to keep rates unchanged.

Commerzbank analysts reviewed its forecasts for the USD/MXN towards the end of the year, estimating the USD/MXN would be around 17.2000. They added, “The weakening US economy and political risks are likely to weigh on the peso.” They estimate the USD/MXN would hit 17.6000 ahead of the Mexican US general elections and at 18.0000 toward the end of 2024.

USD/MXN Price Analysis: Technical outlook

The USD/MXN remains downward biased, but a ‘double-bottom’ chart pattern formed around the year’s lows could open the door for further upside. Resistance levels emerge at a four-month-old resistance trendline passing around 17.40, followed on the upside by the 100-day Exponential Moving Average (EMA) at 17.5093. If USD/MXN buyers clear those two resistance levels, the pair could challenge the psychological 18.00 price level, followed by the 200-day EMAat 18.1306. On the downside, the USD/MXN falling below 17.0000 could put into play a re-test of the year-to-date (YTD) low of 16.6238.