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MEXICO: USDMXN Vols Surge, Key Medium-Term Parameters in Focus

MEXICO
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  • US yields have edged higher on Tuesday, as betting odds for a Trump victory are now more reflective of levels late last week. Short-term risks could be tilted towards the greenback filling the gap to last week’s closing prints (20.2969 for USDMXN), and market participants will be paying close attention to USDMXN, which continues to operate near two-year highs.
  • Overnight FX options contracts now capture the immediate outcome of the election, and USDMXN overnight implied has cleared 100 points - an all-time high for the contract (other notable prints: 95 points mid-COVID, 96 points on Trump's '16 election and ~100 points in the '08 GFC). This implies a ~4% swing in USD/MXN on the results, and an implied range of approximately 19.35 - 21.05.
  • The top end of this range would coincide with a key medium-term resistance point of 21.0535, the July 2022 high. We would highlight 20.4578 as the first target, the 1.764 projection of the Sep 18 - Oct 1 - Oct 4 price swing.
  • More benign outcomes are likely to be met with strong peso short covering and could even make a move lower for USDMXN more pronounced as traders flock back to the attractive carry profile of the MXN. One analyst suggested a Harris victory could lead to USDMXN reaching 18.50, subject to the overall global risk reaction.
  • While we would highlight the domestic risks surrounding constitutional reforms may limit the USDMXN downside, attention will be on the following levels: 19.6124, the 50-day EMA, 19.0666/18.9929, the Sep 18 low/June 12 high and key medium-term support at 18.4860, the Oct 2023 high.
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  • US yields have edged higher on Tuesday, as betting odds for a Trump victory are now more reflective of levels late last week. Short-term risks could be tilted towards the greenback filling the gap to last week’s closing prints (20.2969 for USDMXN), and market participants will be paying close attention to USDMXN, which continues to operate near two-year highs.
  • Overnight FX options contracts now capture the immediate outcome of the election, and USDMXN overnight implied has cleared 100 points - an all-time high for the contract (other notable prints: 95 points mid-COVID, 96 points on Trump's '16 election and ~100 points in the '08 GFC). This implies a ~4% swing in USD/MXN on the results, and an implied range of approximately 19.35 - 21.05.
  • The top end of this range would coincide with a key medium-term resistance point of 21.0535, the July 2022 high. We would highlight 20.4578 as the first target, the 1.764 projection of the Sep 18 - Oct 1 - Oct 4 price swing.
  • More benign outcomes are likely to be met with strong peso short covering and could even make a move lower for USDMXN more pronounced as traders flock back to the attractive carry profile of the MXN. One analyst suggested a Harris victory could lead to USDMXN reaching 18.50, subject to the overall global risk reaction.
  • While we would highlight the domestic risks surrounding constitutional reforms may limit the USDMXN downside, attention will be on the following levels: 19.6124, the 50-day EMA, 19.0666/18.9929, the Sep 18 low/June 12 high and key medium-term support at 18.4860, the Oct 2023 high.