• US dollar rises sharply versus emerging market currencies on risk aversion.
• USD/MXN back above 20.30, eyes again the 20.50 zone.
• Mexico: inflation remains well above Banxico’s target.

The USD/MXN is rising on Monday boosted by a stronger US dollar amid risk aversion. The pair claimed to 20.39, reaching the highest level in six days. It is hovering around 20.31, as Wall Street tumbles.

The S&P 500 is falling by 2.35% and the Nasdaq by 3.23%, adding to last week’s losses. The negative sentiment weighs on emerging market currencies, including the Mexican peso. Also, risk aversion boosted the demand for Treasuries. Earlier US yields reached fresh multi-year highs.

Data released on Monday showed the Consumer Price Index in Mexico rose 0.54% in April and a 7.68% annual rate. Inflation remains well above Banxico’s target. The Mexican central bank will announce its decision on Thursday and a 50 basis point rate hike is expected, from 6.50% to 7.00%.

In the US, inflation data is due on Wednesday. Market participants will also focus on many FOMC members due to speak in public after last week's FOMC meeting, when the Fed rose interest rates by 50bps.

Technical outlook

The USD/MXN is testing the 200-day Simple Moving Average at 20.40. Above the next key level stands at 20.50 and a daily close above should clear the way toward 20.70.

The Mexican peso will likely gain momentum if USD/MXN drops and holds under 20.15; such a scenario could favor a new test of the May low at 19.99.

Technical levels