Mexican Peso weakens amid judiciary reform concerns, Fed's hawkish hold

• Mexican Peso down as judiciary reform fears continue to weigh on investor sentiment.
• Presumptive President Claudia Sheinbaum reassures investors but echoes President AMLO's proposal for elected judges.
• Banxico ready to act against volatility, while Fed's unchanged rate decision and consumer sentiment data bolster USD/MXN.

The Mexican Peso's downtrend continued Friday, with the emerging market currency depreciating by 0.48% as market participants were still nervous about the judiciary reform. Presumptive President Claudia Sheinbaum reiterated Thursday that the reform is a go, emphasizing that judges should be elected, agreeing with President Andres Manuel Lopez Obrador's proposal. Therefore, the Peso continues to weaken, and the USD/MXN trades at 18.44.

Mexico's presumptive President Claudia Sheinbaum reassured investors that they shouldn't be concerned about the reforms. She said, "Mexico's economy is healthy, strong, and [there is] nothing to worry about."

Meanwhile, Bank of Mexico (Banxico) Governor Victoria Rodriguez Ceja said on Wednesday that the central bank is attentive to volatility in the Mexican currency exchange rate and could act to restore "order" in markets.

Across the border, the latest Federal Reserve (Fed) decision to keep rates unchanged and projection of just one interest rate cut in 2024 cushioned the Greenback and boosted the USD/MXN to 14-month highs.

A survey by the University of Michigan (UoM) showed that consumer sentiment amongst Americans deteriorated further, blamed on inflation and incomers. Joanne Hsu, the Director of the Consumers Survey, said that "Assessments of personal finances dipped, due to modestly rising concerns over high prices as well as weakening incomes. Overall consumers perceive few changes in the economy from May."

Daily digest market movers: Mexican Peso trims some of Thursday's gains

• In February 2024, AMLO put forward several proposals to the Mexican Congress. These include a Supreme Court reform that suggests electing Supreme Court ministers through popular vote; an electoral reform aimed at electing electoral commission councilors by popular vote and reducing multi-member representation; and a reform of autonomous bodies that proposes dissolving the transparency body.
• Mexican Peso depreciation could weigh on Banxico decision to ease policy on June 27 despite last month's dip in core prices. Therefore, keeping interest rates higher could prompt deceleration in the economy and increase the odds of a possible recession.
• Mexico's economic docket for next week will feature Aggregate Demand, Private Spending, and Retail Sales data. Despite that, the USD/MXN exchange rate continues to be driven by political uncertainty about the changes to the Mexican Constitution that threaten the state of law.
• Morgan Stanley noted that if Mexico's upcoming government and Congress adopted an unorthodox agenda, it would undermine Mexican institutions and be bearish for the Mexican Peso, which could weaken to 19.20.
• The UoM Consumer Sentiment Index in June fell to 65.6 from 69.1 and missed the consensus of 72. Sentiment dropped to its lowest level in seven months. Inflation expectations for the next twelve months are expected to remain at 3.3%, unchanged, and for a five-year period, they are foreseen at 3.1%, down from 3.3%.
• Latest US inflation report increased the odds of a Fed rate cut in September from 46.7% to 62%, according to CME FedWatch Tool.
• December's 2024 fed funds futures contract hints that investors expect 39 basis points of rate cuts by the Fed through the end of the year.

Technical analysis: Mexican Peso prints losses as USD/MXN slides below 18.50

The USD/MXN pair is upwardly biased despite retreating below 18.50. Although momentum is tilted in the seller's favor, according to the Relative Strength Index (RSI), they need to push the USD/MXN exchange rate below the April 19 high of 18.15 if they would like to keep the exotic pair trading within the 18.00-18.15 range.

On the buyer's side, if USD/MXN breaches 18.50, the next resistance level would be the year-to-date high of 18.99, followed by March 20, 2023, high of 19.23. A breach of the latter will sponsor an uptick to 19.50, ahead of the psychological 20.00 mark.