Market Data 
- The Mexican Peso is consolidating near recent highs with investors bracing for the US employment reading.
- Weak US macroeconomic data and some hawkish comments by Banxico’s deputy Governor have buoyed the MXN this week.
- Technically, USD/MXN’s double top at 20.80 suggests the possibility of a deeper correction.
The Mexican Peso (MXN) is trading practically flat against the US Dollar on Friday’s European session. The USD/MXN pair is looking for direction following a three-day sell-off, with investors wary of placing large US Dollar shorts (USD) ahead of the release of November’s US Nonfarm Payrolls report at 13:30 GMT.
Data released on Thursday showed that claims for unemployment benefits in the US increased beyond expectations last week. This, coupled with the lower-than-expected increase in the ADP private-employment gauge, has been weighing on the US Dollar across the board.
In Mexico, Banxico Deputy Governor Irene Espinosa warned against too-aggressive interest-rate cuts considering that an increase in the minimum wage will exert upside pressure on inflation. This has provided some support to the MXN.
Daily digest market movers: Mexican Peso rally stalls
- According to a survey from Citi Mexico, most of the economists polled see the Mexican central bank cutting interest rates by 25 basis points in December, with GDP growing by 1.5% in 2024 and by 1% in 2025.
- In the US, Nonfarm payrolls are expected to have increased by 200,000 in November, while the unemployment rate is also expected to tick up to 4.2%. These figures support the view of a 25 bps Fed rate cut in December and gradual easing in 2025.
- Earlier this week, Federal Reserve (Fed) chairman, Jerome Powell, highlighted the stress of the US economy and reiterated that the bank should be cautious about rate cuts. These comments suggest that the bank’s easing cycle might target a higher terminal rate than previously anticipated.
- The CME Group’s Fed Watch tool shows an almost 70% chance of a 25 bps rate cut in December and two more cuts in 2025.
Mexican Peso technical outlook: USD/MXN tests support at 20.15
The immediate bias for USD/MXN is negative as it has retreated from the late November highs at around 20.80. However, the pair is also facing a strong support area between 20.05 and 20.15.
The 4-hour Relative Strength Index (RSI) is in bearish territory at around 38, and the double top at 20.80 suggests the possibility of a deeper correction.
Below the 20.00 psychological level, which is also the neckline of the mentioned double top, the next target would be November´s low at 19.75. Resistances are the December 2 high, at 20.60 and November’s peak, at 20.80.
USD/MXN 4-Hour Chart
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
