USD/MXN eases from 8-month highs, looks to close above 20

• Unemployment rate in Mexico ticks up to 3.7% in July.
• Risk-off flows weigh on EM currencies on Tuesday.
• US Dollar Index stays calm near 98 handle.

The USD/MXN pair rose to its highest level since December at 20.0850 on Tuesday as the Mexican peso struggled to find demand amid  disappointing macroeconomic data releases and the risk-off atmosphere. Although the pair eased from its highs in the last couple of hours, it remains on track to close the day above the critical 20 handle.

Earlier today, the data published by the national statistics agency showed that the jobless rate in Mexico in July ticked up to 3.7% from 3.6% and the country posted a trade deficit of $1.117 billion in the same period to miss the market expectation for a surplus of $0.406 billion.

In addition to the uninspiring data, the sharp drop witnessed in the US Treasury bond yields today forced investors to stay away from risk-sensitive emerging market currencies such as the MXN.  

For the first time in 12 years, the 30-year US Treasury bond yield fell below the yield on the 3-month Treasury bill and revived fears over an upcoming recession.  

USD capitalizes on strong confidence data

On the other hand, the US Dollar Index stayed relatively resilient despite falling T-bond yield and remains on track to close the day near the 98 handle. Today’s data from the US showed that the trade dispute with China is having little impact on the consumer sentiment with the Conference Board’s Consumer Confidence Index surpassing the market expectation with 135.9 in August. Additionally,  the Present Situation Index jumped to 177.2 from 170.9 in the same period, further weighing on expectations of the Fed opting out for a large rate cut in September and helped the Greenback stay strong against its peers.

Technical levels to watch for