Cartel chaos rocks Mexico: USD/MXN outlook as retaliatory violence spikes

USD/MXN is a fairly uncommon FX pair in retail trading but amid recent developments in Mexico, it could provide opportunities ahead.

Mexico has seen a flare-up in violence around the country following the killing of the Jalisco New Generation Cartel (CJNG) leader Nemesio "El Mencho" Oseguera Cervantes by Mexican Special Forces, supported by US intelligence, amid the Trump Administration's efforts against Drug Trafficking.

Retaliation from the Cartel has led to significant unrest, with narcotraficantes establishing blockades on major highways, torching buses, stores, and infrastructure near Guadalajara and Puerto Vallarta since February 22.

Following the instability, questions have been raised about the ability of Mexican forces to maintain security as the 2026 FIFA World Cup approaches (Mexico will host some games). President Claudia Sheinbaum has repeated that risks to infrastructure and tourists remain low; however, the situation requires close tracking.

In FX Markets, USD/MXN has corrected in a major downtrend since the beginning of 2025 and is now eyeing a potential reversal as instability in the country could lead to outflows in the currency.

Some monetary policy backdrop for Mexico: the Banco de México (Banxico) recently communicated a hawkish pause (current rate at 7.00% from 11.25% highs in 2023) amid elevated inflation from recent data. Such communication would usually support a currency; however, political instability could outstrip the turn from the Central Bank.

Let's dive right into a top-down look at USD/MXN to spot if an imminent reversal could emerge with the current turmoil.

Note: While international turmoil is troubling, traders are concerned about one thing in particular. Money. It makes the World go around, and while some profit from the situation, the wisest thing that anyone can do is at least to remain conscious of what is happening.

Do your own research, study news from all possible sides and biases, and make sure to keep a wise, objective approach when trading on such touchy subjects. Praying for peace and stability in Mexico and around the World.

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The North American pair has gone through some structural rebalancing as the post-Trump 2.0 regime brought the US Dollar considerably lower against its peers.

Down close to 17% since January 2025, the pair has remained within a key downward weekly tight bear channel, leading to the immediate test of the 2023 Support located in the 16.75 to 17.10 region.

The weekly RSI is now forming a turn which resembles closely to a bullish divergence. We should see its effect on the shorter timeframes right below.

Currently at the bottom of its descending channel, the FX Pair is forming a base after a long drop, leading to a striking bullish daily divergence.

Support has been holding well, hence despite the few attempts to retest the 17.11 Lows, bears haven't been able to generate a clean push.

The US Dollar is also in the midst of its own political chaos, but overall, the Dollar Index has held well throughout tariff turmoil, prompting a high potential for a reversal.

USD/MXN technical levels of interest:

Resistance Levels

• 17.25 to 17.33 Daily Momentum Pivot (bulls take the hand above)
• 17.50 to 17.60 February Highs (short-term breakout if close above)
• 17.90 to 18.00 December 2025 Resistance (Channel Highs)
• 18.20 to 18.30 November 2025 Base Resistance

Support Levels

• 17.10 to 17.18 Current February Support (immediate test)
• 17.11 Feb lows (bearish if break and close below)
• 16.95 to 17.00 Next Key Support
• January 2024 lows 16.26

The immediate outlook marks a clear range between 17.10 and 17.30, a key region for position building.

With the latest reversal back to support, the immediate price action is key.

• Rejecting support and crossing back above the 4H 50-period MA would suggest that a reversal is on its way
  • Bulls will want to confirm with a 4H candle close above 17.30.
  • Breaking above this level points at a swift retest of the 17.56 February highs.
  • Extending beyond Feb Highs should then lead to a test of the Channel highs resistance between 17.90 and 18.00
• A break and close below 17.09 maintains the downtrend, however, probabilities from recent technical suggest this scenario is less probable.

Safe Trades and keep a close eye on the US-Iran developments (which have high impact on the US Dollar)!

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