USD/MXN Price Analysis: Remains below 23.6% Fibo. hurdle near mid-16.00s, or weekly high

• USD/MXN trades with a positive bias for the third straight day, albeit lacks follow-through.
• The technical setup supports prospects for the emergence of fresh selling at higher levels.
• Reduced Fed rate cut bets continue to underpin the USD and should limit the downside.

The USD/MXN pair attracts some buyers for the third successive day on Thursday, albeit lacks bullish conviction and remains below the weekly top, around the 16.50-16.55 area touched the previous day.

The aforementioned area represents the 23.6% Fibonacci retracement level of the January-April downfall and should act as a key pivotal point for short-term traders. A sustained strength beyond might trigger a short-covering rally and lift the USD/MXN pair to the next relevant hurdle near the 16.65-16.70 supply zone, or the 38.2% Fibo. level. Some follow-through buying should pave the way for a move towards challenging the 16.85 confluence hurdle, comprising the 100-day Simple Moving Average (SMA) and the 50% Fibo. level.

Meanwhile, technical indicators on the daily chart – though have been recovering – are still holding in the negative territory and suggest that any meaningful upside might still be seen as a selling opportunity. This, in turn, warrants some caution for bullish traders and before confirming that the USD/MXN pair has bottomed out in the near term. In the meantime, the 16.30-16.25 area, or the lowest level since August 2015, is likely to protect the immediate downside, below which spot prices could slide to test the 16.00 round-figure mark.

The hotter US consumer inflation figures released on Wednesday forced investors to push back expectations for the first interest rate cut to September from June. Moreover, the markets are now pricing in the possibility of less than two 25 basis point rate cuts in 2024, which assists the US Dollar (USD) to stand tall near the YTD peak. This should assist the USD/MXN pair to defend the aforementioned handle, which if broken decisively should pave the way for the extension of an over a two-month-old downtrend witnessed from the YTD peak touched in January.

USD/MXN daily chart