Mexican Peso rallies as President-elect Sheinbaum's cabinet picks boost investor confidence

• Mexican Peso strengthens for second consecutive day as USD/MXN drops close to 1%.
• Positive market reaction comes in response to choice of Marcelo Ebrard as economy minister.
• Banxico expected to hold rates unchanged amid inflation concerns and recent Peso depreciation.

The Mexican Peso rallied for the second straight day against the US Dollar on Friday after President-elect Claudia Sheinbaum revealed the first members of the cabinet on Thursday, which were cheered by investors. In the meantime, traders brace for next week's Bank of Mexico (Banxico) monetary policy decision, which is expected to hold rates unchanged. The USD/MXN trades at 18.21, down 0.80%.

Mexico's President-elect Sheinbaum revealed on Thursday the first six cabinet members to take office on October 1. She named Marcelo Ebrard as economy minister and Juan Ramon de la Fuente as foreign minister. Traders saw these appointments as positive since Ebrard will oversee the USMCA free trade agreement review.

Data-wise, the Mexican economic docket featured Economic Activity, which plunged in April, as shown by monthly figures. In the twelve months to April, it exceeded estimates.

In the meantime, most analysts estimate Banxico will keep rates unchanged after the 6.95% depreciation of the Mexican Peso following the June 2 general election. The consensus was expecting a 25-basis-point cut on June 27, though not unanimously, as Deputy Governors Jonathan Heath and Irene Espinosa expressed that inflation risks were skewed to the upside.

Across the border, June S&P Global Flash PMIs exceeded estimates, a sign of economic robustness. Nevertheless, the latest Existing Home Sales data suggests the housing market continues to cool down.

Daily digest market movers: Mexican Peso advances after mixed economic activity data

• Mexico's April Economic Activity plunged -0.6% MoM, deeper than the expected -0.3% contraction. On an annual basis, Economic Activity expanded by 5.4%, up from -1.3%, and exceeded the consensus of 3.8%.
• Citibanamex Survey showed that most analysts estimate Banxico's next rate cut will come at the August 8 meeting and that interest rates will be lowered from 11.00% to 10.25%, up from 10%.
• According to the poll, economists estimate inflation to finish 2024 down at 4.27%, core inflation at 4.02%, and the USD/MXN exchange rate at 18.70.
• USD/MXN stabilizes following last week's verbal intervention by Banxico Governor Victoria Rodriguez Ceja, who said the central bank is attentive to volatility in the Mexican currency exchange rate and could act to restore "order" in markets.
• S&P Global Manufacturing and Services Flash PMIs in June expanded above estimates. Manufacturing PMI came at 51.7, up from 51.3 and the estimate of 51. The Services PMI jumped from 54.8 to 55.1 and was above forecasts of 53.7.
• US Existing Home Sales in May were lower than expected at 4.11 million from 4.14 million in April, a contraction of -0.7%.
• CME FedWatch Tool shows odds for a 25-basis-point Fed rate cut at 59.5%, up from 57.5% on Thursday.

Technical analysis: Mexican Peso climbs as USD/MXN falls below 18.30

The USD/MXN is upwardly biased as a Golden Cross emerged two days ago, but today's dip below 18.30 has opened the door for a pullback with bears eyeing the 18.00 psychological level. At the time of writing, momentum favors sellers as the Relative Strength Index (RSI) almost vertically falls toward the 50-neutral line.

That said, the USD/MXN first support would be the 18.00 figure. Once cleared, the next stop would be the 50-day Simple Moving Average (SMA) at 17.29, ahead of the 200-day SMA at 17.23.

For a bullish continuation, the USD/MXN must clear 18.50 if buyers want to retest the year-to-date high of 18.99. A breach of the latter will expose the March 20, 2023, high of 19.23. If that price is cleared, this will sponsor an uptick to 19.50.