The USD/MXN pair has retreated from its daily high and is now trading near the 18.10 price level. In the process, the USD/MXN also broke its 2-day uptrend, which tells us that the MXN is gaining the upper hand against the USD for the short term.
However, this strength in the MXN is nothing as it bounces off from its lowest levels, only seen near April 2018. If we look around, the sell-off in the MXN currency in the last few days had little to do with Mexico's economy and more to do with the USD's broad strength.
If we look ahead, the support that was formed during early February near the 18.10 level will keep a lid on the further downside. Beyond that, we also have support zones located around 18.07 and 18.03.
After that, the next support zones are present near 18.00 and 17.94. But given the current FX market situation and the USD strength, we don't think MXN has the capacity to bring the USD down.
That's why we believe the recent downside move in the USD/MXN will be short-lived. In fact, it is more of a recovery move where the technical indicators cool off before resuming the uptrend once again.
On the upside, a break of the resistance located around 18.15 and 18.16 will invite more MXN sellers to join the party. In that case, the MXN will lose more ground against the US Dollar.
According to analysts, the buyers in the USD/MXN will remain away from the table unless we get a clear break of the 18.50 resistance level.
Based on the current technical setup, it appears that the USD/MXN will remain depressed in the short term. However, any fresh strength in the US Dollar could put an end to the recent reversal move.
In addition, the other major pairs such as the USD/CAD, EUR/USD, and USD/JPY will also offer insight on where the USD/MXN is headed.