Tonight the Mexican will leave its key rate unchanged at 7% once again. The fall in GDP in Q3 is due to the earthquake and tornados so that there is no reason for the to react to the GDP data with rate cuts, it would not have scope for those anyway due to rates. The latter is likely to have remained around 6% again in October (publication today), even though it is likely to have peaked slowly now and should ease towards the central bank’s target again (3%) next year.
As a result, many observers expect the to initiate a rate cut cycle in mid-2018. We are skeptical though. The recently weaker peso might delay the process of disinflation. The renegotiations of the NAFTA agreement and US also point towards peso weakness. In the run-up to the Presidential elections in July 2018, we may also see some pork barrel legislation which may keep rates elevated for longer.
As a result, the may leave rates unchanged for longer. If the NAFTA negotiations were to fail the may even have to implement emergency rate hikes to weaken the depreciation pressure on the peso. However, the following applies for today: the meeting is unlikely to provide any surprises and should, therefore, be a non-event for the peso.
After a brief correction in the major trend of USDMXN , the Bulls resume their business by bouncing back in the previous month owing to the Fed’s rate hiking signals but this bounce is not confirmed by both leading and lagging oscillators. So, it is unwise to draw the calls in an isolation, consequently, this has been evident in this month’s price action again. The price slumps are visible and likely to prolong further (observe both daily and monthly plotting).
If you have to observe the short-term technical trend of this pair, sentiments have been mounting and slumps are most likely to test next strong supports at 18.90 levels.
While both leading & lagging indicator to substantiate stance, remaining in trajectory does not substantiate this standpoint but this would be deemed as indecisiveness in current rallies.
converges to the ongoing price dips as this leading oscillator trending below 57 levels which is a clear early signal for aggressive bears, the same has been the case when you’ve to plot , it signals weakness as it evidences %d crossover which is again a indication. This confirms the momentum in short-term selling sentiments.
Hence, we recommend shorting rallies on hedging grounds and decide to initiate shorts in contracts with the near-month tenor.
Well, at spot reference: 19.0860, contemplating lingering indications, on hedging grounds we recommend shorting near-month month as the underlying spot FX likely to target southwards firstly at 18.90 in near run and upon the breach below these levels 18.4151 levels is also a probable event.
Writers in a contract are expected to maintain margins in order to open and maintain a short position.