USD/MXN rebounds from two-months low, ends May sharply lower

• The Mexican peso is the biggest gainer of the currency market in May.
• USD/MXN rises on Friday on risk aversion, but ends week lower.

The USD/MXN dropped to 22.00 on Friday, hitting a fresh two-month low and then rebounded. Near the end of the week, it is trading at 22.25, up for the day but about to post the second weekly slide in a row and the lowest close since early March.

The rally of the Mexican peso lost momentum but it held most of its monthly gains. Among the most traded currencies, the peso has been the best performer during May.

The key driver was an improvement in market sentiment amid fiscal and monetary stimulus and the re-opening of many economies. Over the last session, sentiment deteriorated as tensions between the US and China escalated.

Is the Mexican peso rally over?

The USD/MXN dropped 8% in May and bottomed around 22.00. The decline has been significant, and it could fall further as it usually the cross makes exacerbated moves. The weekly chart shows strong support at 22.00 and below at 21.60/80, a horizontal level and also the 20-week moving average that should limit the downside.

A recovery of the USD/MXN should face resistance around 22.90 initially, and above at the 23.20 area. If the dollar consolidates above the last one, more gains seem likely.