USD/MXN jumps above 20.30; emerging market currencies hit by risk aversion

• Wall Street is falling sharply, volatility soars as US yields hit multi-year highs.
• Emerging market currencies are under pressure on 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, recovering 20.30. During the last two hours, the pair rose more than 1.20% amid a rally of the US dollar across the board.

US stocks give back Fed gains and more

The greenback gained momentum amid a selloff in Treasuries. The US 10-year yield stands at 3.09% and the 30-year at 3.18%, both at the highest level since Q4 2018. Higher yields and risk aversion are boosting the dollar. The DXY is about to test the 2022 high as it trades at 103.82.

Fears about higher rates hit market sentiment. Stocks in Wall Street had on Wednesday the best day since 2020. On Thursday, they are given back all those gains and even more. The Dow Jones tumbles 3.30%, and the Nasdaq plummets 5.02%.

The negative environment weakened emerging market currencies. The worst performer is the South African rand (USD/ZAR up 3.90%) and the Brazilian real USD/BRL +2.58%).

Key levels

The USD/MXN is back at the 20.30 level after hitting earlier the lowest level in two weeks under 20.00. The reversal put upside risks back to the table. If it holds above 20.30, the dollar could rise to test the critical short-term resistance area of 20.50. Above the next resistance stands at 20.70.

If USD/MXN failed to hold above 20.30 and slips back under 20.20, the Mexican peso could regain control, looking for a new test of 20.00.

Technical levels