USD/MXN reverses sharply and drops below 18.75 as Mexican peso strengthens

• Mexican peso erases Monday’s losses versus US dollar. 
• Improvement in risk sentiment also weighs in USD/MXN. 

The USD/MXN dropped significantly on Tuesday, pulling back below key technical levels. As of writing trades slightly below 18.74, down 0.90%, having the worst performance in at least a month. 

The improvement in risk appetite helped emerging market currencies, among them the Mexican peso outperformed on Tuesday. Technical factors also helped the move lower in USD/MXN. 

Price is back near the 2020 low hit last week at 18.64. The dominant trend remains bearish as it has been the case most of the time since September and particularly during February. “Although positive external developments have supported appreciation of the MXN over the last month, we remain wary of suggesting long
MXN positions from current levels, given the peso’s sensitivity to geopolitical developments, the electoral cycle in the US, trade news, and a likely more dovish Banxico going forward”, explained analysts at CIBC. 

Technical outlook 

After rising during three days in a row, USD/MXN reversed sharply with the Mexican peso recovering critical levels. Price dropped back below the 20-day moving average after hitting resistance near 19.00. 

The short-term outlook again favours the downside and while USD/MXN holds under 18.82, a test of the 2020 low seems likely.