Forex Investment and Currency Trading

Mexico: Uncertainty for the MXN outlook continues to weigh on investor sentiment. Deputy Finance Minister Werner commented that the MXN market has become “fertile ground for speculative activities” echoing comments made by Banxico Governor Ortiz earlier this week. Banxico did not intervene in FX markets yesterday (note the central bank issues a brief statement after market close
confirming FX intervention), but markets appear concerned as every move down in USD-MXN prompts discussion of possible central bank action. Some remain skeptical of the central bank’s ability to halt the MXN slide and express that view via a long BRL-MXN recommendation. The daily [...]

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In recent weeks, global economic activity prospects have deteriorated significantly, leading to sharp revisions to GDP estimates worldwide. In particular, the worsening of the crisis in the US is now unavoidably having an effect on the Mexican economy and GDP growth prospects for 2009. The effects of the US slowdown in Mexico’s economic activity have now become evident in 3Q 2008 figures and seem likely to extend deep into 2009. In coming months the crisis in the US is likely to impact the Mexican economy through three main channels: substantial lower growth for Mexico’s manufacturing exports, diminished remittances flows, and [...]

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Last week’s depreciation and volatility of the Mexican peso was of a scale not seen since the onset of the crisis of 1994-1995. After closing on October 7 at 12.3363 per U.S. dollar, the peso plunged to an intra-day low of 14.314 on October. Historical data on intra-day movements is not available, but if
the intra-day low had been the closing level then this would have been its largest daily depreciation since December 22, 1994. Of course, the rate of 14.314 also represents a record low for the peso. Before last week, the record closing low had been 11.665 on May 10, 2004.
Last [...]

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Four stages to the dollar
There have been four stages to the strong recovery of the U.S. dollar in the last few weeks.

Signs of weakness in the European economy
Risk aversion – which resulted in an unwinding of short U.S. dollar positions
Counterparty risk – more recently when borrowers found it increasingly difficult to rollover U.S. dollar and were forced to sell currency to obtain the necessary dollars.
Panic sales of foreign currency/purchases of U.S. dollars – which is perhaps the best description of this week.

The first stage was largely irrelevant for Mexico. This was far from the case, however, with the second stage [...]

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