The Mexican Peso (MXN) tumbled against the US Dollar (USD) on Friday, facing a risk-off market driven by fears of an Iran-Israel conflict and hawkish comments from a Fed official. These factors derailed the emerging market currency, with USD/MXN trading near 16.68 and potentially ending the week with losses.

Key Market Movers

• Geopolitical Risk: Reports of a potential Iranian attack on Israel fueled risk aversion.
• Hawkish Fed Commentary: Boston Fed President Susan Collins suggested a delayed Fed rate cut and two cuts in 2024, a shift from previous projections.

US and Mexican Economic Data

• US sentiment deteriorated per the University of Michigan preliminary April reading, with inflation expectations rising.
• Recent Mexican data showed continued disinflation, supporting the recent Bank of Mexico (Banxico) rate cut. However, February Industrial Production disappointed.
• US inflation figures (CPI and PPI) and strong jobless claims data led to a shift in Fed expectations, with market pricing in two cuts in 2024 and an ending rate near 4.92%.

Technical Outlook: USD/MXN Eyes Further Gains

Despite today’s surge, USD/MXN remains technically downward biased. For bulls to regain control, a decisive break above the 50-day Simple Moving Average (SMA) near 16.82 is needed, potentially paving the way toward the 17.00 level and the 200-day SMA near 17.16. A break below 16.50 could trigger a steeper decline towards October 2015 lows near 16.32 and the year-to-date (YTD) low at 16.25.