The Mexican pesos is tracking losses of 6.4% on the month, its third monthly decline and second worst this year. Earlier in August, USD/MXN reached a high of 20.2181 before retracing the move. A deterioration of its carry attractiveness and present domestic/foreign risks now leave MXN longs as an uncomfortable trade
Implied volatility screens cheap as the negative premium to historic stands at 280bps, the most in more than a month. The lower panel in the chart shows a positive correlation between the spot rate and realized vol 3m
Both an extension of historic vol or a catch-up in implieds could hurt the peso via more carry unwind. Positioning remains net long as of last week
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