USD/MXN erases gains and falls to 20.40 after rising to 8-week highs

• Mexican peso recovers ground after BoE announcement.
• Climate of fear in the markets continues to dominate and puts pressure on emerging market currencies.
• USD/MXN bullish in the short term, with a strong tone to continue above 20.25.

The USD/MXN is trading practically in neutral territory, after experiencing a setback in the last few hours. The pair rose hours ago to 20.57, the highest level since early August, and in the run-up to the Wall Street open it trades just below 20.40.

The rises in the USD/MXN were being accompanied by a further decline in the equity and commodity markets. The tone began to change with the Bank of England’s announcement that it would temporarily buy bonds, which helped stock markets regain ground, weakened the dollar and favored a rebound in commodity prices.

Despite this, the climate of fear continues to be normal. Volatility remains high. Traders are eyeing stock markets and the global sovereign bond market. Yields are moderating the rise after the BoE announcement.

Thursday Banxico will decide on monetary policy, which is expected to be a third consecutive rise of 75 basis points in the reference interest rate to 9.25%. This occurs after the rise in magnitude of the Fed and given the persistence of inflation well above the objective of the Mexican central bank.

Technically, the USD/MXN has an upward bias in the short term, which will remain strong as long as the price exceeds 20.20/25. At the moment the 20.45 area remains a resistance to watch out for. Although it trades above on Wednesday, it failed to consolidate. If there is a close on this area, the dollar would be ready to extend the rises, finding the next strong barrier at 20.70.

Technical levels