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MEXICO: Peso Extends Recovery, Goldman Sachs Find MXN Longs Attractive

MEXICO
BulletEM BulletEmerging Market News
  • USDMXN traded on a steady downward trajectory into Friday’s close, bringing total losses on the week to around 2%. Last week’s initial cabinet announcements provided a more solid backdrop for the currency, allowing some of the newly embedded risk premium to slowly dissipate.
  • Overall, the substantial move post the June 2 vote has deemed that moves lower for the pair at this juncture are considered technically corrective, with initial support seen at the 20-day EMA, which intersects today at 17.9918. 
  • However, Goldman Sachs point out that set against the recent sharp depreciation, most macroeconomic and FX fundamentals in Mexico are in a healthier position now than during the 2018 Mexican election and the 2016 US election, including elevated FX carry. This argues for a less abrupt increase in risk premium had it not been for the starting point: an overvalued and over-owned MXN that had outperformed other market variables for over two years. 
  • Taking these factors into account, GS think that MXN longs look increasingly attractive from a total return perspective as USD/MXN has been gradually moving lower and the local news flow has turned more supportive on the margin.
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  • USDMXN traded on a steady downward trajectory into Friday’s close, bringing total losses on the week to around 2%. Last week’s initial cabinet announcements provided a more solid backdrop for the currency, allowing some of the newly embedded risk premium to slowly dissipate.
  • Overall, the substantial move post the June 2 vote has deemed that moves lower for the pair at this juncture are considered technically corrective, with initial support seen at the 20-day EMA, which intersects today at 17.9918. 
  • However, Goldman Sachs point out that set against the recent sharp depreciation, most macroeconomic and FX fundamentals in Mexico are in a healthier position now than during the 2018 Mexican election and the 2016 US election, including elevated FX carry. This argues for a less abrupt increase in risk premium had it not been for the starting point: an overvalued and over-owned MXN that had outperformed other market variables for over two years. 
  • Taking these factors into account, GS think that MXN longs look increasingly attractive from a total return perspective as USD/MXN has been gradually moving lower and the local news flow has turned more supportive on the margin.