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BRLMXN Deterioration Continues To Highlight Short-Term Divergence

  • BRLMXN is currently down 0.61% for the session and the recent divergence of sentiment has been exacerbated by a technical break below 3.70, coinciding with the August and May 2021 lows.
  • Fiscal anxieties in Brazil remain at the forefront of the newswires, thwarting the intervention efforts of the central bank. Guedes most recent comments have done little to support BRL, with a circumvention/breach of the spending cap looking more and more likely.
  • With details of AMLO's electricity reform bill likely to drag over until at least December and any potential complications to the USMCA agreement uncertain at present, MXN continues to be driven by broader risk-sentiment in the short-term.
  • Indeed, today's comments from president AMLO, while not groundbreaking, do strike a slightly more conciliatory tone – willing to accept changes to the bill if essence maintained.
  • Following this break of 3.70, the pair has continued beyond the first target of 3.65 (76.4% retracement taken from the 2021 low-high) and further weakness will turn the focus to 3.50 and the 2021 lows.


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