12/09/24

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The Mexican peso is experiencing a rise on Thursday, reflecting a positive market sentiment that has carried over from Wednesday. Despite the passage of contentious judicial reforms in Mexico, the Peso has shown resilience, breaking free from its previous bullish channel against the US Dollar. The shift signals potential weakness ahead for the currency pair.

On Thursday, the Mexican Peso (MXN) maintained its upward trajectory against major trading partners, adding to the gains of 1.4% to 1.7% seen the previous day. The upbeat mood in the markets has been bolstered by increases in Asian equities, upward trends in European stock indexes, and a rebound in commodities. This favorable environment tends to benefit risk-sensitive currencies like the Peso.

Peso’s strength seems unaffected by the Senate’s vote on judicial reforms, which have drawn criticism from prominent investors and ratings agencies. Concerns have been raised that such reforms could threaten judicial independence and deter foreign direct investment, potentially impacting the country’s economic outlook. Following a challenging June that saw a 10% depreciation in the peso, the currency’s resilience is noteworthy.

On Wednesday, the Peso defied the general trend in the foreign exchange market, appreciating more than 1.4% against the US Dollar. This counters the broader weakening of most currencies against the US Dollar due to unexpected spikes in core US inflation data, which tempered speculation about significant interest rate cuts by the Federal Reserve.

Additionally, robust automobile sales data, indicating record car sales for 2024, may have contributed to the Peso’s strength. The Mexican Automotive Distributors Association anticipates commercial car sales will reach 56,592 units, breaking the previous high set in 2007. This follows announcements of significant investments, such as Volvo’s planned $700 million truck manufacturing plant in Monterrey, highlighting Mexico’s appeal for logistics and trade with neighboring countries.

Currently, the exchange rate stands at 19.75 Mexican pesos for one U.S. dollar, with the Euro trading at 21.75 MXN and the British pound at 25.76 MXN.

From a technical perspective, the USD/MXN pair has broken out of a rising channel, indicating potential bearish developments. Analysts suggest that a downside target could be in sight at approximately 19.62, with further declines possible towards the 19.50 mark. However, the overall longer-term outlook for the peso remains positive, suggesting that any short-term weaknesses will likely be followed by renewed upward momentum. A break above the channel’s upper boundary would reinforce the bullish trend, potentially leading to targets in the upper 20s.