Fade the dollar move, long the Mexican Peso.
Updated
The dollar has recently broken out against a variety of EMFX crosses. Interestingly, the picture is not the same in the G10 space. With the 10Y yield breaking higher, the narrative is that foreign investors are suddenly attracted to US yield and the dollar receives a bid as a result. We believe it is simply due to rapid growth and inflation expectations changing in the US to the upside. This is bullish to the equity market and bullish risk in general. Add to the cocktail the mix of monetary and fiscal policy in most of the world, and you have tailwinds that will send EM markets higher. Banxico recently cut rates citing soft inflation, however, the majority of Mexico data remains rate-of-change positive. Technically, the dollar reached the 200day exponential moving average and broke out from the prior downtrend. We are fading this as a "fake" breakout. Moreover, we wouldn't be surprised to see dealers hedging gamma above the 20.50 level, causing the slight overshoot. We enter long MXNUSD at 20.80, with a stop at 21, targeting a return to 19.54, where we will book most of the position, and keep SOME in case we see a follow-through downside break.
Note
The PnL box on the chart is incorrect, we entered the trade 20.80, you may check the timestamp.Note
The stop was placed at 21. We re-enter on fundamentally the same view.Trade closed manually
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