Mexican Peso Finds Strong Footing Below $18.00 Amid Wall Street’s Rally

Mexican Peso Traders Brace for Ongoing Turbulence as Government Surprises with Airport Concessions

Implied Volatility Surges, While Peso Records Gains Against the US Dollar, Mexican peso traders are navigating choppy waters as they rush to secure short-maturing currency options. They anticipate that the currency’s recent wild swings will persist in the coming weeks, fueled by bulls unwinding their positions after the peso breached its 200-moving average.

Mexican peso traders are on a frantic spree, acquiring short-maturing currency options, anticipating sustained volatility in the coming weeks. The recent breach of the 200-moving average has triggered a rush among bulls to unwind positions. Implied volatility, soaring to 15.6%, marks the highest since March, diminishing the currency’s allure known for its attractive carry-to-volatility ratio. The government’s unexpected move on airport concession agreements adds pressure, leaving traders speculating about potential impacts on other sectors.

Market Overview:

  • Mexican Peso (MXN) records robust gains against the US Dollar (USD), closing below the key 18.00 level.
  • USD/MXN declines amid a risk-on sentiment from Wall Street, closing with losses amidst mixed US data.
  • Daily Digest Market Movers: Mexican Peso rallies late in the North American session.

Economic Indicators:

  • IMF increases Mexico’s growth projection for 2023 to 3.2%, with a further rise to 2.1% in 2024.
  • Banxico’s September poll indicates expected interest rates to remain at 11.25%, with a forecasted exchange rate of around 17.64.

Economic Challenges:

  • Mexico’s S&P Global Manufacturing PMI for September contracts to 49.8, indicating an economic slowdown.
  • Business confidence improves, but the financial system stability committee warns of potential external shocks.

Technical Analysis:

  • USD/MXN registers a bearish shift, testing resistance levels with potential downside risks.

Market Influencers:

  • The Mexican Peso faces downward pressure after the announcement of alterations in airport tariffs.
  • US economic data impacts market sentiment, with a focus on upcoming Nonfarm Payrolls and Average Hourly Earnings.

Currency Performance:

  • The peso regained ground after a decline, trading at 18.29 to the dollar, following a 1.9% depreciation.
  • USD: MXN closed at 17.42 last Friday, reflecting a 5% depreciation throughout the week.

In a dynamic economic landscape, uncertainties prevail, marked by global economic trends and central bank policies. Stay tuned for further updates as events unfold, impacting the Mexican peso’s trajectory.

Implied Volatility Hits New High

Implied volatility has skyrocketed to 15.6%, marking its highest level since March. This surge further diminishes the appeal of the peso, known for its attractive carry-to-volatility ratio.

Government’s Curveball

Adding to the currency’s woes, the government has unveiled a surprise move regarding airport concession agreements. This unexpected development has left traders pondering whether other sectors may also become targets, intensifying the pressure on the peso.

Solid Peso Gains

Despite the turmoil, the Mexican Peso (MXN) demonstrated resilience by registering solid gains against the US Dollar (USD). It achieved a daily close below the psychological 18.00 level, potentially opening the door to a re-test of the 200-day Simple Moving Average (SMA) at around 17.80.

USD/MXN Faces Headwinds: On the flip side, the USD/MXN pair faced headwinds amid a risk-on sentiment seen on Wall Street. The pair concluded Wednesday’s session with notable losses of 0.67%, influenced by falling US bond yields, undermining the Greenback.

Key Economic Indicators

Several key economic indicators shed light on Mexico’s economic landscape, including:

  • A boost in Mexico’s growth projection for 2023 and 2024 by the IMF.
  • US ADP Employment figures falling below expectations.
  • US ISM Services PMI showing a moderate slowdown.
  • An advance in Mexico’s August remittances.
  • Expectations of stable interest rates but lower inflation.

While these factors provide a mixed outlook, the peso’s path remains uncertain.

Technical Analysis

The Mexican peso’s trajectory has shifted bearish, following its breach of the 200-day SMA. Traders are eyeing potential resistance levels and downside risks, making for a dynamic market.

Market Volatility Continues

Recent developments, including alterations in airport tariffs, have triggered volatility in the Mexican Stock Exchange and intensified the peso’s decline to a six-month low.

As Mexico’s financial landscape undergoes significant shifts, traders and investors remain on high alert, navigating an environment marked by uncertainty and change.