Mexican Peso plummets amid political turmoil, US elections

• Mexican Peso weakens amid political uncertainty after judicial reforms limit judiciary's ability to challenge constitutional changes.
• President Sheinbaum's defiance of a federal judge's suspension order adds to concerns about rule of law and economic stability.
• Fears of potential US tariffs under a Trump presidency weigh on the Peso, compounding pressure from Mexico's internal political shifts.

The Mexican Peso depreciated against the US Dollar on Friday due to political turmoil linked to the recently approved judicial reform. Investors remain uncertain about recently approved reforms, which could threaten the state of law, and affect Mexico's creditworthiness. At the time of writing, the USD/MXN trades at 19.98, up 0.96%.

Market sentiment remains upbeat, which would usually underpin the Mexican currency. Politics are capping the Peso's advances after the Senate passed a proposal to make constitutional reforms "unchallengeable." Its approval would curtail the judiciary's powers to impede reforms made by lawmakers in Congress.

According to Joaquin Monfort, Senior Analyst at FX Street, "Critics argue this would upset the balance of power in Mexico, whilst proponents argue the judiciary is biased and vulnerable to corruption."

In September, the Mexican Congress passed a judiciary reform allowing judges and magistrates to be elected by popular vote. Regarding these reforms, two federal judges granted suspensions after citizens appealed the changes to the Mexican Constitution.

One of the judges ordered Mexican President Claudia Sheinbaum and the director of the official gazette, Alejandro Lopez Gonzalez, to lower the publication and remove the decree validating the judicial reform from the gazette. However, Sheinbaum said, "We are not going to lower the publication," incurring in contempt of a federal judge's order.

In the meantime, fears of Donald Trump's victory in the US election could weigh on the Mexican Peso, as he repeatedly stated that he would impose tariffs of over 200% on cars manufactured and imported from Mexico.

Data-wise, US Durable Goods Orders slumped in September for a second consecutive month, while core shipments remained down in four of the last five months reported.

Recently, the University of Michigan (UoM) Consumer Sentiment for October, on its final reading, improved above estimates and the previous month's reading. Inflation expectations for one year were revised downward and, for five years, remained unchanged.

Daily digest market movers: Mexican Peso dwindles on political instability

• A mixed inflation report in Mexico for the first 15 days of October might prevent the Bank of Mexico (Banxico) from lowering borrowing costs by 50 basis points (bps), according to Monex. Banxico's next meeting is on November 14.
• US Durable Goods Orders in September slumped 0.8% MoM, below estimates of -1% and unchanged compared to last month.
• US Consumer Sentiment in October was better than expected, rising to 70.5, up from 69 expected.
• The same poll revealed expectations for one year dropped from 2.9% to 2.7% and for five years remained unchanged at 3%.
• Data from the Chicago Board of Trade, via the December fed funds rate futures contract, shows investors estimate 49 bps of Fed easing by the end of the year.

USD/MXN technical outlook: Mexican Peso tumbles as USD/MXN buyers eye 20.00

The USD/MXN is upwardly biased and approaches the psychological 20.00 figure. Momentum suggests that buyers are in charge as the Relative Strength Index (RSI) resumed its advance. Hence, the path of least resistance is tilted to the upside.

If buyers clear the 20.00 figure, they could test the weekly peak at 20.09. On further strength, the USD/MXN could aim toward the year-to-date (YTD) high at 20.22, ahead of key psychological levels of 20.50 and 21.00.

On the other hand, if sellers reclaim the October 18 low at 19.64, this could pave the way for a challenge to 19.50. The next move would be toward the October 4 swing low of 19.10 before testing 19.00.