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⚠️💱Peso Front-End Implied Undervalued By Around 400Bps: Cable FX Macro

  • Last week, the spike in the USD/MXN recorded a range above 1.50 pesos. Over the past five years, ranges this wide have been seen only 7 times

  • However, front-end implied vols are reacting different as hedging demand has not eased, this is a divergence from the historic regression to the mean pattern seen in vols

  • The 1w IV tenor now reads at 26.855%, the highest since Covid. When comparing to the equivalent tenor in realized, implieds are undervalued by around 400bps

  • Traders might continue to expect wide swings in USD/MXN as long as realized volatility continues to rise. Looking ahead, we have manufacturing and industrial production indicators. Banxico decides on the 27th, a few days after bi-weekly CPI metrics release



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