USD/MXN Price Analysis: So far, just a correction

• Mexican peso extends recovery amid improvement in risk sentiment.
• USD/MXN drops for the second day in a row.
• Key support at 20.30/35, dollar to strengthen above 20.45.

Emerging market currencies are rising of the second day in a row on Monday, amid a global improvement in market sentiment. Steady US yields and higher commodity prices offer relief to riskier currencies, like the Mexican peso.

The USD/MXN peaked last week above 21.00, levels not seen since March. It failed to hold above 21.00 (also to post a daily close above 20.90) and it pulled back initially to 20.60. On Friday, it broke lower and bottomed on Monday at 20.32, near the 20-day Simple Moving Average.

During the American session, USD/MXN is rebounding from the key support area around 20.33. If it moves back above 20.45, the Mexican peso would lose strength, opening the doors for a test of 20.70 that is again a critical resistance.

The retreat from monthly highs so far, represents a correction in USD/MXN. The short-term bias remains bullish. A consolidation below 20.45 would keep the upside limited. A close under 20.22 could change the short-term bias to neutral.

USD/MXN daily chart