• USD/MXN rides on risk aversion and strong US data, marking two straight days of gains.
• Stellar US JOLTs report fuels potential Fed rate hike speculations, strengthening USD.
• Anticipated Mexico’s Business Confidence and US job data may sway the currency pair further.

USD/MXN prints two consecutive days of gains, bouncing off the weekly lows of 17.5401, and reached the 17.7700 area as risk-aversion spurred outflows from the emerging market currency. Factors like China’s weak recovery, US debt-ceiling discussions, and solid data from the United States (US) weighed on the Mexican Peso (MXN). At the time of writing, the USD/MXN is trading at around 17.6860, above its opening price by 0.15%.

Emerging markets feel the pinch as US data underscores resilience and prompts hawkish Fed outlook

Wall Street extended its losses portraying a risk-off environment. Weaker than expected manufacturing PMI in China, US debt-ceiling woes, and upbeat US economic data underpinned the USD/MXN to new weekly highs of 17.7724.

The labor market in the United States is proving its resilience, as shown by data in the calendar. As revealed by the JOLTs report, job openings crushed estimates of 9.375M, which came at 10.1M in April, signaling the tightness of the labor market. Following the release, the USD/MXN jumped from around 17.60 toward the  17.7500 area. The reaction is attributed to speculations that the US Federal Reserve (Fed) could raise interest rates in the upcoming June meeting

That triggered a re-pricing towards a more hawkish Federal Reserve (Fed), with odds at 69.8%, for a 25 bps rate hike.

Federal Reserve speakers have begun crossing the wires, with the Vice-Chairman nominee by the US President Joe Biden, Philip Jefferson, saying that keeping rates unchanged. However, they should not be taken as a peak for the tightening cycle. Echoing some of his comments was Philadelphia Fed Patrick Harker, who commented that he’s on the camp of “skipping” a meeting and added that incoming data could change his point of view.

Upcoming events

The agenda in Mexico will feature the Business Confidence for May after April’s numbers came to 52.6. Across the borders, the US economic docket will feature the ISM and S&P Global PMIs, jobs data with jobless claims, and the ADP Report.

USD/MXN Price Analysis: Technical outlook

The USD/MXN pair is downward biased. During the day, buyers tested the waters at the 20-day Exponential Moving Average (EMA), at 17.7511, before retracing from around that area, dropping below 17.7000 after Fed speakers’ remarks. For a bullish continuation, the USD/MXN buyers must claim the 20-day EMA and the April 2018 lows-turned-support at 17.9388 before challenging the 50-day EMA at 17.9483. Conversely, if USD/MXN slips below 17.60, a test of the YTD low of 17.4238 is likely.