- Wall Street is falling sharply, volatility soaring as US yields hit multi-year highs.
- Emerging market currencies are under pressure from risk aversion.
- USD/MXN erases losses and looks at 20.50.
The USD/MXN is rising sharply on Thursday, erasing Wednesday’s losses and so far retaking the 20.30 zone. Over the past two hours, the pair is up more than 1.20% amid a broad rally in the US dollar.
The dollar gained momentum amid a sell-off in Treasuries. The US 10-year yield stands at 3.09% and the 30-year yield stands at 3.18%, both at their highest level since Q4 2018. Higher yields and risk aversion are boosting the dollar. DXY is testing the 2022 high as it trades at 103.94.
Fears about higher rates weighed on market sentiment. Stocks on Wall Street had their best day since 2020 on Wednesday. All those gains are returned on Thursday. The Dow Jones falls 2.87% and the Nasdaq plunges 4.75%.
The negative environment weakened emerging market currencies. The worst performer is the South African rand (USD/ZAR up 3.90%), followed by the Brazilian real (with the USD/BRL increasing 2.58%).
key levels
USD/MXN is back at the 20.30 level after earlier touching the lowest level in two weeks below 20.00. The reversal put upside risks back on the table. If it sustains above 20.30, the dollar could rally to test the critical short-term resistance area of 20.50. Above, the next resistance is located at 20.70.
If USD/MXN fails to hold above 20.30 and drops below 20.20 again, the Mexican peso could regain control, seeking a retest of 20.00.
Technical levels
Source: Fx Street
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