USD/MXN drops toward 22.25 as the US dollar slides

• Mexican peso rises versus the US dollar but retreats versus EM currencies.
• USD/MXN heads for lowest close in a month, still above 22.20.

The USD/MXN has continuously fallen over the last 24 hours. It is trading at 22.27, the lowest level in almost a week and near the July bottom. A weaker US dollar across the board pushed the cross to the downside.

An improvement in risk appetite boosted the demand for emerging and commodity currencies and weighed on the greenback. The agreement at the European Union of a recovery fund and optimism about a COVID-19 vaccine is behind the risk-on mode.

Among emerging markets, the Mexican peso is not outperforming. The Brazilian real is the biggest gainer with USD/BRL falling 2.80. The Australian dollar is the best major on Tuesday, gaining 1.70%.

Levels to watch

The USD/MXN is trading near the 22.20/25 resistance band. If it drops below, it would target 22.00/05. Under 22.00, the next support is seen at 21.90 that protects 21.55.

At the moment, USD/MXN is facing increasing bearish pressure, but if during the next sessions it manages to hold above 22.20, it would alleviate the tone, favouring a rebound. Resistance is seen at 22.60 and then at 22.75. A daily close above the last one would clear the way to more gains.