USD/MXN Price Analysis: Downside looks solid below 18.10 as USD Index loses upside momentum
- USD/MXN is eyeing more weakness below 18.10 as USD Index has witnessed exhaustion in the upside momentum.
- The USD Index is struggling to expand gains further as investors are ignoring volatility ahead of US inflation data.
- USD/MXN is expected to continue further downside amid Darvas Box formation.
The USD/MXN pair has gauged an intermediate cushion after a sheer downside around 18.10 in the Asian session. The asset is hovering near the aforementioned support but is likely to face selling pressure as the US Dollar Index (DXY) has witnessed exhaustion in its upside journey.
The USD Index is struggling to expand gains further as investors are ignoring volatility ahead of US inflation data. Topsy-turvy moves are expected from the USD Index as the US inflation is expected to display some surprises.
Investors are divided about US inflation figures as one school of thought is favoring further softening of inflation as higher rates might have dampened retail demand, While, others are expecting a surprise rebound as labor market conditions are extremely solid.
On an hourly scale, USD/MXN is expected to continue the downside move amid the trend-following characteristic of Darvas Box chart formation. The formation of Darvas Box indicates an inventory adjustment phase between institutional investors and retail participants. Currently, the Darvas Box is forming in a range of 18.10-18.15. Horizontal support is placed from April 03 low at 17.96.
The 20-period Exponential Moving Average (EMA) at 18.15 is acting as a barricade for the US Dollar bulls.
Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bearish range of 20.00-40.00 range, indicating more weakness ahead.
Going forward, a decisive break below April 07 low at 18.10 would expose the asset to the horizontal support plotted from April 03 low at 17.96. Further crack below the latter would expose the asset to a fresh five-year low at 17.75.
Alternatively, a break above March 24 high at 18.78 will expose the asset to March 17 high at 18.95 and March 20 high at 19.23.