- USD/MXN remains confined in a narrow trading band near its lowest level since December 2015.
- The formation of a descending channel points to a well-established downtrend and favours bears.
- A sustained strength beyond the 17.30-40 confluence is needed to negate the negative outlook.
The USD/MXN pair oscillates in a narrow range around the 16.75 region through the Asian session on Monday and consolidates its recent losses to the lowest level since December 2015.
From a technical perspective, the decline witnessed over the past four months or so has been along a downward-sloping channel, which points to a well-established short-term bearish trend. Furthermore, the USD/MXN pair's inability to attract any meaningful buying suggests that the path of least resistance is to the downside. The negative outlook is reinforced by the underlying bearish sentiment surrounding the US Dollar (USD), led by firming expectations that the Federal Reserve (Fed) is nearing the end of its rate-hiking cycle.
That said, the Relative Strength Index (RSI) on the daily chart is already flashing oversold conditions and warrants some caution before placing fresh bearish bets around the USD/MXN pair. Hence, any subsequent fall below the multi-year low, around the 16.70 region is more likely to find decent support near the lower end of the aforementioned trend-channel, currently pegged near the 16.6240 area. That said, some follow-through selling will mark a fresh breakdown and pave the way for a further near-term depreciating move.
On the flip side, the 16.85-16.90 area now seems to act as an immediate hurdle ahead of the 17.00 round figure. This is followed by resistance near the 17.10-17.15 region, which if cleared might trigger a short-covering move and lift the USD/MXN pair beyond the 17.25 intermediate barrier, towards testing the 17.30-17.35 confluence. The latter comprises the ascending channel resistance and the 50-day Simple Moving Average (SMA) and also nears the monthly swing high. A sustained strength beyond could negate the near-term bearish outlook.
USD/MXN daily chart
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Key levels to watch
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