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Deutsche Bank See Room For Tactical MXN Retracement As Vols Recede

MEXICO
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  • In Deutsche Bank’s view, none of the strong fundamentals for MXN have changed recently. The monetary policy stance remains cautious, activity shows resilience, and external accounts are in relatively good shape. They believe that the sharp movements in USDMXN over the past week can therefore be explained as an adjustment in positioning, particularly by asset managers, in response to a broader pick up in volatility, presumably due to heightened geopolitical tensions in the Middle East.
  • Looking ahead, as USDMXN vols start to recede, DB believe that we should see more room for MXN to tactically retrace. Risks are associated with an uncertain US rates outlook, in a context of stretched valuation for MXN and still heavy positioning. On a more medium to long-term view, DB note that US elections could pose a greater risk for MXN.
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  • In Deutsche Bank’s view, none of the strong fundamentals for MXN have changed recently. The monetary policy stance remains cautious, activity shows resilience, and external accounts are in relatively good shape. They believe that the sharp movements in USDMXN over the past week can therefore be explained as an adjustment in positioning, particularly by asset managers, in response to a broader pick up in volatility, presumably due to heightened geopolitical tensions in the Middle East.
  • Looking ahead, as USDMXN vols start to recede, DB believe that we should see more room for MXN to tactically retrace. Risks are associated with an uncertain US rates outlook, in a context of stretched valuation for MXN and still heavy positioning. On a more medium to long-term view, DB note that US elections could pose a greater risk for MXN.