USD/MXN is trading close to two-year lows as the Mexican Peso continues to strengthen, with the pair quoted around 16.88 after testing levels near 16.85. The move has persisted despite a strong US Nonfarm Payrolls release, and price action leaves the cross positioned to retest the April 2024 low at 16.74. Bearish momentum is reinforced by the Relative Strength Index, which is pushing deeper into bearish territory.
A break below 16.74 would bring focus to the 16.52 area and then the 2024 low at 16.26, with 16.00 in view beyond that. On the topside, a recovery would require a move back above 17.00, followed by resistance at the 19 August high of 17.07. Further gains would expose the 50-day SMA at 1725, then the 100-day SMA at 17.30, with the 200-day SMA at 17.48 above. Banxico targets inflation at 3% within a 2%–4% band, and its rate decisions, alongside oil prices, remittances, nearshoring and broader risk sentiment, remain key drivers of MXN.
Technical Outlook and Trading Strategy
We are currently seeing the Mexican Peso assert dominant strength against the US Dollar, pushing the USD/MXN pair to test crucial support levels near 16.85. With the Relative Strength Index (RSI) diving deeper into bearish territory, technical indicators suggest this downward momentum is highly sustainable. Derivative traders should prepare for a sustained move downward, especially as the pair sets aside strong US economic data in favor of domestic MXN drivers.
To capitalize on this trend in the coming weeks, we recommend that derivative traders establish short positions on USD/MXN, targeting the immediate April support level of 16.74. A clean break below this threshold will open the door for a slide toward 16.52, with the ultimate target sitting at the yearly low of 16.26. To hedge against any unexpected hawkish shifts from the Federal Reserve, stop-losses should be placed just above the psychological 17.00 resistance mark.
Macro Drivers and Yield Advantage
This bullish outlook for the Peso is heavily backed by Mexico’s robust macroeconomic landscape and attractive yield differentials. Foreign direct investment in Mexico, fueled by the ongoing nearshoring boom, reached a record $31 billion in recent periods, reinforcing long-term demand for the currency. Additionally, with Banxico maintaining its benchmark interest rate at a highly restrictive level of 10.75% to combat inflation of around 4.99%, the Peso continues to offer one of the most attractive carry-trade yields in emerging markets.
