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The loss of respect by carry traders, rising volatility, a slowdown in the Mexican economy, and the threat of Donald Trump returning to power are making life difficult for investors. us dollar mexican peso Bear. Let’s discuss it and make a trading plan.
Mexican Peso Monthly Fundamental Forecast
Love and hate are just one step away. Latin American currencies have long been favorites of forex investors, with their high prices and low volatility making them ideal for carry trades. For example, buying the Mexican peso against the Japanese yen made a 50% profit from early 2023 to May 2024. However, the elections turned the super peso into an ugly duckling. In June, the currency lost more than 8% and became one of the offshore currencies in forex.
The JPMorgan Emerging Market Currency Index fell 4.4% in the first half of the year, more than twice its level during the same period in 2022-23, let alone 2021.
Emerging market currencies
Source: Financial Times.
Investors are fleeing emerging markets as local currency volatility increases on the back of parliamentary and presidential elections around the world, the Federal Reserve keeping the federal funds rate at 5.5% for longer than expected, and monetary easing cycles that have led to investors fleeing emerging markets have begun in some countries.
The Bank of Mexico was forced to extend the pause in reducing the key interest rate, keeping it at 11% in May and June. Moreover, Victoria Rodriguez, Governor of Banxico, says that the reason lies not in faster inflation, but in the sharp increase in peso volatility. A weak peso could lead to consumer prices rising further, so the best decision for the central bank is to wait and see how things develop.
Banxico Rate and Mexican Inflation Trends
Source: Bloomberg.
Speculators don’t want to wait. Hedge funds reduced net long positions on the peso at the third-fastest pace on record, while asset managers reduced them to their lowest levels in about two years. Money actively fled the country after Claudia Sheinbaum’s Morena party, which intended to implement market-unfriendly reforms, won the elections.
after US dollar Mexican peso Prices rose to their highest levels since March 2023, the new president was forced to appoint officials respected by investors to key government positions, and Banxico began making verbal interventions. This cooled the bulls somewhat, but they did not abandon their plans. Thus, Citigroup expects the US dollar to rise to 19.74 pesos in 2025 with Mexico’s GDP growth estimates revised from 2.1% to 1.8% this year and from 1.5% to 1.2% next year.
Monthly trading plan for USDMXN
Although the shock associated with the presidential election is gradually fading, investors’ love for the super peso will not return. Respect is hard to earn and easy to lose, and traders who lose money on interest trading will be afraid to trade the Mexican currency for a long time. Against the backdrop of the imminent resumption of monetary easing by the Bank of Mexico and the growing risks of Donald Trump returning to power, investors will fear that they will be forced to reconsider the Mexican currency. US dollar Mexican peso The pair risks resuming the uptrend. Use the current retracement level to buy the pair with a target of 18.8 and 19.5.
USDMXN real-time price chart
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