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USDMXN Reversing Lower, JPMorgan Find Peso Valuations Attractive

MEXICO
  • USDMXN has been slowly edging lower as the US session begins, continuing to eat into the strong rally overnight following the President-Elect’s press conference remarks. USDMXN is now just 0.5% higher on the day, having rallied as much as 1.86%.
  • In JPMorgan’s judgement, it is worth holding on to long MXN positions, despite near-term uncertainty. A big part of the MXN move has been reflective of positioning. Valuations are now very attractive and JPM don’t think the new government’s agenda will derail strong fundamental tailwinds.
    • Overall, JPM believe the worst of the peso sell-off is behind us and JPM’s short term valuations models show MXN at 2.4 standard deviations from fair value, a level that has been historically profitable to fade. As such, they are staying OW MXN and MW Mexico rates in the GBI-EM Model Portfolio.
    • The recent spike in political uncertainty will keep Banxico from making any decisive turn in their hawkish stance, particularly as we move closer to a US presidential election. Hence, JPM prefer to stay on the sidelines for now, and close their 2Y TIIE receiver vs. 2Y USD OIS payer at a loss.
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