Forex Investment and Currency Trading

1 – 3 Month Outlook: MXN volatility here to stay
MXN has not escaped the current broad-based flight from EM risk, USD/MXN spiking 15%+ since early-Aug. With U.S. (and global) recession risks rising and the view is that the risk reduction / de-leveraging cycle will last another 3-6 months, the MXN will remain hostage to external forces (the USD, core equities, oil prices) given its tight economic / financial links to the U.S. The USD/MXN forecasts for 08Q4 are 11.25 and 11.60, respectively, with the view that the current move could be a short-term overshoot but the 12-18 month trend is [...]

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Some rumors that Mex Central Bank was intervening in FX spot  (high trade 14.32) but not confirmed at all & rather traders here see USDMXN spot (while horribly illiquid itself) as trading in sync w/USDBRL where Central Bank notably did intervene to sell U.S. Dollar in FX spot market. Had only taken few moments earlier this morning for Brazil FX futures contract to trade limit up on BMF suspending trading for day (Nov 4 NDF equiv) unless futures contract trade back < prevailing threshold (2.45) which it has after the intervention allowing BRL futures trading to resume. So shorting MXN in part likely to [...]

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There are two main upside risks to the MXN. First, thus far, the US downturn has neither affected manufacturing exports nor growth in Mexico. This is because the auto sector has remained robust, while Mexico is becoming a key supplier of intermediate manufacturing inputs for booming US exports. If this trend continues, then the US export story would mitigate the contractionary effects of the US recession in Mexico. This is because Banxico would raise interest rates if supply price shocks in the 1Q2008 contaminate expected inflation and price formation. In fact, since the introduction of the new fiscal reform (which [...]

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