Weekly Outlook: Mexican Peso Strengths Against The US Dollar

Full Story: Breaking lower on Peso strength, the USDMXN currency pair penetrated the 11.1000 figure and headed lower throughout the week despite somewhat disappointing figures on the economic data schedule.  Nonetheless, the move constitutes the greatest advance compared to the other emerging pairs over the course of the week as the pair dropped by over 1000 basis points to end the seven day period.  Now, pulling back slightly above the 11.0000 level, further optimism from this weeks reports my set the pair up for more peso advances.

Scheduled for the week, the Mexican public balance is expected to switch to a positive surplus as opposed to a deficit equaling 3.94 billion pesos seen in the previous report.  For July, the report narrowed slightly from the previous monthly report, giving hope to governmental officials that a balanced budget may in fact be in the making as previously anticipated.  Revenue for the balance was supported by a 45 percent increase, discounting inflationary pressures.  Spending figures also were increased by 45 percent.  Subsequently, this places the overall budget surplus at 79.1 billion pesos, slightly lower on the reported shortfall.  Subsequently, the expected surplus for the beginning of the week will setup nicely for the consumer confidence survey that is expected for the month of September.  Rising slightly to 111.3, the August report increased for the second consecutive time, leaving the market anticipating a continued increase in this weeks report.  Further signs of expansion are leading consumers to believe in future growth and will likely lead to increased spending and investment by individuals.  The notion will ultimately spur further inflation increases, prompting central bankers in considering further tightening measures as the already implemented policies seem to be ineffective.

Comparatively, the weeks economic data was slightly more pessimistic than the upcoming, as sectors of the economy declined to the dismay of peso enthusiasts.  First and foremost, unemployment increased in the North American economy for the second consecutive time, rising to 4.03 percent from the previous 3.95 percent.  Disappointment arose on the fact that the consensus had expected a decline to 3.8 percent, attributed to an expansionary environment.  The employment report preceded a negative and complimentary retail sales figure that increased by a weaker 2.8 percent pace, down from the enormously positive 4.2 percent seen in the previous month.  For July, expectations were looming over an uptick of 3.9 percent.  Although consumer spending stuttered for the month, expectations remain of a rebound as wholesales sales continue to rise in the month.  Widely regarded as a future indication of consumer level sales, the support seen in the wholesale figures are likely to keep bulls positive of a 4.5 percent expected rate of growth in 2006 as consumer spending remains a key to the recent rebound.

Economic Releases for September 27 October 4

Technical:  The USDMXN continues to work higher from the supporting trendline drawn through 10.7328, 10.8260, and 10.8921.  The pair has broken above the confluence of the 1 and 3 month moving averages (22 and 66 days?.at 11.9638/9780).  Moreover, the 1 month SMA just crossed above the 3 month SMA yesterday.  The daily trendline (below on chart), currently at 10.9390, keeps the bias a bullish one.  A break below negates the bullish bias and targets the 9/18 low at 10.8921.  A push above the 9/25 high at 11.1226 could see a break higher towards the 61.8% fibo of 11.5195-10.7340 at 11.2192.