The Peso has been Trumped so far and while the move lower (higher in nominal terms) is not over we are getting near a climax topping pattern which combined with fundamentals have us wanting to OWN the MXN into elections. This view is not consensus in any way.
Note in the chart some of the technical factors at work. From April you have a series of Ascending Triangles. Ascending Triangles are VERY POWERFUL and a bullish formation that usually forms during an uptrend as a continuation pattern. They are patterns that indicate accumulation or in this case selling pressure on the Peso is growing. As the pattern develops, volume usually contracts. When the upside breakout occurs (upside nominally downside in value of the currency) there should be an expansion of volume to confirm the breakout. We may have this breakout coming in the next 24 hours. Ultimately this is the move we want to fade.
We're starting to see Medium and Long Term BUY (Stronger Peso, weaker nominally) setups over the next few weeks in the short run, potentially starting tomorrow. For example if Trump crushes Hillary in the debate MXN could gap higher tomorrow.
Meanwhile the Mexican Peso is cheap on a PPP basis by 20% and arguably was already cheap prior to Trump on a proxy play for all of EMFX which is still held hostage by the Fed. What we are slowly realizing is that Dollar strength can continue but the thrust of this move is behind us. The Dollars appreciation BEFORE the first hike in this rate cycle was significantly different than what you would see in a typical rate hike. In other words the Dollar priced in what the Fed may or may not be able to deliver.
We see the Peso testing another 5-10% weaker before we have put in the nominal top and valuation bottom. Watch 21 for a turn in the currency. Meanwhile the Mexican Central Bank meets this Thursday and could tighten rates by 50bps which may just start the reversal in fortune, especially off what could be a massive Trump debate win(not our base case on the debate nor does it need to be for the trade but investors should understand the patterns).
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