Mikkel Rosenvold
5 weeks ago

USDMXN: A Golden Opportunity

USDMXN: A Golden Opportunity Amid Mexican Election Sell-Off, Says Steno Research Analyst
Belgrade, Serbia. 16th August, 2016. US Vice President Joseph 'Joe' Biden and Serbian PM Aleksandar Vucic holds a joint press conference — Photo by ognjen1234
Belgrade, Serbia. 16th August, 2016. US Vice President Joseph 'Joe' Biden and Serbian PM Aleksandar Vucic holds a joint press conference — Photo by ognjen1234

In the wake of a massive sell-off following the recent Mexican election, Claus Hornsleth, a Quant Analyst at Steno Research, sees a golden opportunity for the Mexican Peso (MXN). Despite market jitters, Hornsleth emphasizes that Mexico's position as a crucial "value-add middleman" in the trade dynamics between the US and China remains robust.

Hornsleth confidently states, "As long as trade ties between China and the US necessitate a middleman, Mexico stands in an advantageous position, regardless of whether the president is Sheinbaum or Obrador."

A Strong Case for MXN

Steno Research's analysis highlights that the USDMXN pair is trading significantly rich compared to macro factors. The PCA model, which explains 67% of the price fluctuations in USDMXN, indicates that the current price deviates considerably from the fair value. Following the latest Fed meeting, Hornsleth believes a reversion towards the fair value, currently below 17.00, is imminent.

"Our PCA model reveals a clear disconnect between the current USDMXN price and its macroeconomic fundamentals. This discrepancy presents a compelling case for a stronger MXN," Hornsleth explains.

Corporate Credit Risk: A Key Driver

The Macro Anatomy chart from Steno Research points to corporate credit risk as the most influential factor driving USDMXN prices. Hornsleth notes, "If risk aversion spikes in the corporate credit market, we can expect USDMXN to move higher in response."

Promising Backtest Results

Historical data further supports Hornsleth's optimistic outlook. Since 2015, similar deviations from the PCA Fair Value estimate have occurred only twice, both times resulting in a profitable reversion. Based on this analysis, Steno Research has decided to sell USDMXN forward, targeting a fair value estimate of 16.8650 with a stop above recent highs at 19.00.

Exclusive Access for Institutional Subscribers

Steno Research's advanced quant signals, including their PCA model and backtesting features, will soon be exclusively available as an add-on for institutional subscriptions via Bloomberg. For more information, institutional investors are encouraged to reach out via Bloomberg or email.

In summary, Claus Hornsleth's insights suggest that the recent sell-off in MXN is a temporary blip, presenting a lucrative opportunity for traders. With robust trade ties and a favorable position in global trade dynamics, Mexico's currency is poised for a strong rebound.

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