USD/MXN Stalls at Support and Climbs Higher. Now What?

USD/MXN TECHNICAL ANALYSIS:

• USD/MXN rebounds after failing to break key support in the 20.20 area
• Near-term bias is slightly bullish for the US dollar, but traders should keep an eye on sentiment as improving risk appetite may play in favor of the Mexican peso
• In this article we present the most important technical levels for USD/MXN to keep in mind this and next week

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USD/MXN has traded on the back foot in recent days, falling close to 3% from its October high amid positive sentiment and EMFX strength. However, the sell-off was stopped in its tracks on Thursday, as price failed to breach cluster support in the 20.15/20.20 area, as buyers resurfaced to bid the U.S. dollar higher. From those levels, we have seen a moderate bounce, which has taken the pair above 20.30, and much closer to critical resistance at 20.45, a technical barrier that has halted the price’s ascent on numerous occasions back in September.

At the moment, USD/MXN maintains a positive bias as it remains above its 50-day and 200-day moving average, but to rejuvenate the kind of upside pressure seen late last month, price would need to climb decisively above 20.45 in the coming sessions. A move above this mark would be a bullish signal and could certainly attract new buyers, paving the way for a rally towards the monthly highs in the 20.90 region.

On the other hand, if buying momentum fails to accelerate and USD/MXN resumes its downward journey, traders should keep a close eye on how the price reacts around 20.15/20.20, as the loss of this technical floor could be the start of a large pullback. In case of a move below that area, market participants should prepare for a possible retreat towards 19.80, a strong support that has repelled attacks many times in the past three months.

From a sentiment standpoint, investors’ mood has improved, as relatively strong US corporate earnings have shown that there is still no widespread erosion of margins due to inflation. If this trend persists through the reporting season, risk appetite could strengthen globally, weighing on the U.S. dollar and boosting EMFX across the board.

USD/MXN TECHNICAL CHART

Source: TradingView

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—Written by Diego Colman, Contributor