Mexican Peso strengthens on upbeat data, moves to block judicial reforms

• The Mexican Peso rises after robust US and domestic automobile data suggest a strong export outlook.  
• Moves by judges to block contentious reforms to the judiciary further support the MXN.
• USD/MXN breaks below the key 50-day SMA and tests the bottom of a major rising channel. 

The Mexican Peso (MXN) strengthens for the sixth day in a row on Monday, gaining in all three of its key pairs (USD/MXN, EUR/MXN, and GBP/MXN). The catalyst for the rise is a mixture of a more benign outlook for its most significant trading partner, the United States (US)  - following better-than-expected US employment data - as well as recent robust domestic data from Mexico. 

Data out on Friday showed US Nonfarm Payrolls (NFP) beat expectations by a wide margin in September, rising by 254K when economists had only expected a 140K increase, according to data from the Bureau of Labor Statistics (BLS). In addition, the Unemployment Rate fell to 4.1% from 4.2% when markets had feared the opposite. The data overall showed the US economy remains in good shape, averting fears of a "hard landing". 

In Mexico, meanwhile, both Automobile Production and Exports rose in September. Production climbed 11.71% from 8.3% in the previous month, and exports by 4.8%, up from 1.7% in August. That said, Mexico's Jobless Rate in August hit 3.0%, which was above July's 2.9%, according to data from the Instituto Nacional de Estadistica y Geografia (INEGI).

Mexican Peso rallies as fears ease about Sheinbaum, Judges block new laws 

The Mexican Peso is further supported by easing investor concerns regarding radical reforms proposed by former President Andres Manuel Lopez Obrador (AMLO). Many investors deem the reforms "anti-market". This caused a sell-off in Mexican financial assets after the re-election of his Morena-led coalition in June. It was also partly responsible for the Peso weakening 10% in the months after the election.

Although the new President Claudia Sheinbaum has said she broadly backs AMLO's radical reform agenda, markets appear to be more optimistic about their implementation under her tutelage, according to Christian Borjon Valencia, Analyst at FXStreet. 

The first key reform was voted through at the tail end of AMLO's tenure in September. It calls for the election of judges rather than their appointment. It has been heavily criticized for undermining the independence of the judiciary and, as a result, scaring away potential foreign investors key to Mexico's growth as a nearshoring destination.

The Mexican Peso gained ground at the end of last week, however, after the Mexican Supreme Court voted to delay the implementation of the new judicial reforms, so they could re-examine and possibly make revisions to the new laws. Their move was backed by the legal principle that the laws should not risk undermining the independence of the judiciary. 

Over the weekend, the National Electoral Institute (INE) challenged a further brake to the implementation of AMLO's judicial reforms, this time by several district Judges. The INE made an appeal to the Federal Electoral Court (TEPJF) asking to revoke the block, which seeks to inhibit the elections for new judges scheduled for June 1, 2025, according to El Financiero.  

Technical Analysis: USD/MXN breaks below 50-day Moving Average

USD/MXN breaks below the 50-day Simple Moving Average (SMA), a key line in the sand for traders, and tests the bottom of a medium-term rising channel.  

USD/MXN Daily Chart 

USD/MXN is expected to find support at the base of the channel, and there is a chance it will recover and start to rise again. The medium and longer-term trends are still bullish, and given the technical analysis principle that "the trend is your friend," the odds favor a recovery and continuation higher.

However, the short-term trend is bearish, and the pair has now broken below the 50-day SMA, a key level and the first obstacle to more downside. A decisive breakout from the channel would risk threatening the medium-term uptrend in the USD/MXN. 

A decisive break would be characterized by a longer-than-average bearish candlestick that pierced cleanly below the channel line and closed near its low. Such a break would then probably follow-through lower, to an initial downside target at 19.00 (August 23 low, round number) and then 18.60, the level of the 100-day SMA.