1. FX Outlook
  2. FX Options Weekly

Macro and Vol Commentary

The Mexican peso continued to appreciate against the dollar in recent months, testing the highs of 17.54, the level not seen since 2016. With Banxico poised to pause its hiking cycle on May 18th, a couple of weeks after the Fed, what is the outlook for USDMXN?

Mexican Economy

  • Mexican peso has been appreciating this year, supported by elevated interest rates, strong remittances and resilient economic performance.
  • Mexico has also become a key destination for factories searching to relocate closer to the US, boosting investment and demand for the currency.
  • The economy continues to show signs of resilience, with economic growth forecast above 3.0% for 2023.
    • Q1 growth surprised on the upside, at 1.1%, as robust remittances stoked domestic consumption and exports surged to meet strong US demand.
      • The agriculture sector was up 2.4% y/y in Q1 2023, while manufacturing and services grew 2.7% and 4.4%, respectively.
      • The economy has now posted six straight quarters of growth.
    • Mexico’s forecast for oil output is 1.87m /bl this year and 1.91m bl/d next year.
      • However, exports out of the nation are set to slow, given that the government wants to end crude exports as part of its strategy to make the country more self-sufficient.
      • Further peso appreciation could weigh on the country’s export demand, but we are yet to see this take place.
  • Despite slowing US performance, the robust domestic market, which has benefitted from the revival of the services sector, puts the economy on a much stronger footing to take the risks of a rising recessionary environment.
    • The labour market continues to remain strong, with unemployment at decade low of 2.4%.
      At the same time, Mexico boosted its general minimum wage to 207 pesos per day from the previous 172.87, propping up households’ disposable incomes.
  • At the same time, demand for goods out of Mexico remained strong.
    • Around $53.5bn worth of exports left the economy in March, leading to an unexpected trade surplus.

Central Banks

  • Weaker dollar helped to drive the MXN higher in recent weeks.
    • With the Fed pausing on its interest rate cycle at 5.0-5.25%, the currency was pushed above the 17.83 level, a high not seen since 2017.
  • Mexico’s central bank is also considering halting its tightening cycle next week, as downward pricing pressures and inflation expectations are some of the key drivers in this decision.
    • The CB raised its key rate by 725bps since June 2021.
    • Last meeting, the central bank raised the rates by 25bps to a record high of 11.25%.
    • This was following a bigger-than-expected 50bps increase in February after core inflation was taking longer to react to higher rates.
  • Now, interest rate swaps stand at 12bps, the lowest in nearly three years.
    • With the inflation now trending down, falling to 6.24% y/y in April, the rhetoric changed.
      • A decline in electricity tariffs in some parts of the country and lessening agriculture prices contributed to the lower headline inflation reading in April.
      • Core inflation also decelerated during the period to 7.67%.
  • For 2023, inflation is set to slow to 4.0%, slightly above the 3.0% central bank target.

The Mexican peso continues to rely heavily on the US economic and monetary policy performance. However, even with Banxico set to pause the rates a couple of weeks after the Fed, solid domestic and overseas performance is putting the economy on a much better footing to take the risks of high-interest rates and upcoming recessionary risks. Inflation has been declining at a solid rate, giving more room for policymakers to pause before reassessing future policy meetings. Our view of the dollar is that of marginal softness, especially with further hikes from the ECB and the BOE. This should give the MXN more room to appreciate in the near term, and USDMXN could break below 17.50 in the near term. MXN is set to continue to gain ground until we get initial signs that the US labour market is significantly weakening.

Sources: S&P Global, INEGI, Banco de Mexico 

Volatility Commentary

USMXN Vol has dropped significantly with 1m Vol @ 10.58 down from 17.94% mid-March, during which time USDMXN has made 6-year lows benefiting from carry trades, robust domestic economy and general USd weakness. Technically, the cross is approaching levels where we are likely to see strong support. Fundamentally, inflation has dropped back significantly with their central back expected to now keep rates on hold after raising rates by 7.25 % since June 21. Furthermore, Mexico posted record exports last month and one of the driving forces of growth, however with USDMXN at these levels could make Mexico less competitive compared to rest of LATAM going forward and could make Banxico a bit nervous. Therefore, in the short run we expect a bounce in the cross especially given recessionary jitters increasingly creeping into market sentiment. Vol level are attractive at these levels and hence we recommend a long vol strategy to benefit from a bounce in the cross.

USDMXN Trade Idea

  • Long Call spread

  • Buy 2month Call @ 18.60

  • Sell 2m month Call @ 19.60

  • Notional 5m USD on each

  • Net structure Costs $22,500

  • Max payoff (255K USD – Premium Paid)

  • Max Loss (Premium Paid)

Positioning Charts

USDBRL NDO Positioning Data 27/04/2023 - 04/05/2023

The USDBRL positioning range widened in the week ending May 11th, but the near-term downside cover tightened slightly. This suggests that the robust level on the downside is now forming around the 4.90 level, and if the options break below this level, it could trigger robust losses on the downside. At the same time, the number of calls continued to build, especially in the near term, but given a wider range, markets have less conviction for the upside.

Usd Brl 27 4

USDBRL NDO Positioning Data 04/05/2023 - 11/05/2023

Usd Brl 4 11 (2)

USDCNY Vanilla Positioning Data 27/04/2023 - 04/05/2023

USDCNY's positioning shifted slightly on the upside, as the number of puts diminished sharply, with the notional size of calls growing. This suggests greater conviction for higher prices, and the robust resistance level stands at 6.90. The number of robust call options at this level throughout the year suggests that this level remains key in guiding market sentiment. Or view for USDCNY is that of a growing upside in the near term.

Usd Cny 27 4

USDCNY Vanilla Positioning Data 04/05/2023 - 11/05/2023

Usd Cny 4 11 (2)

USDMXN Vanilla Positioning Data 11/03/2023 -11/04/2023

USDMXN data saw the number of options grow in the month ending May 11th, with both puts and calls becoming more concentrated around the 18.00-19.00 range, down from 18.00-19.50. The number of puts grew significantly and continued to offset the number of calls, suggesting the momentum remains on the downside. A wider upside cover also suggests a growing appetite for lower levels in the near term.

Usd Mxn Mar Apr

USDMXN Vanilla Positioning Data 11/04/2023 - 11/05/2023

Usd Mxn Apr May

Charts and Tables

FX Expiries

Expiry (46)

Historical Spot FX Volatility (30D Rolling)

Chart (41)

FX Matrix (today)

Spot (100)

Weekly Change

Week (81)

Key Events & Releases

Calendar (112)

Technical Charts

JP Morgan Global FX Volatility 


The index continued to weaken in recent days but found support at 8.84, and the index is now seen trading slightly above this level. At the same time, moving averages are providing resistance for prices, and the trading in recent days has mostly been range bound. The indicators point to strong selling pressures in the near term, with %K/%D just converging on the downside, suggesting we could see strong selling pressure in the near term. The MACD confirms this, as it is positive and converging. To confirm the acceleration of the downside trend, the index needs to break back below the 8.84 level before testing the 8.50 level. Alternatively, if the index was to find support at current levels, we could see it retest the 10 and 100 MAs at 9.05 and 9.10, respectively. The indicators point to a continuation of downside momentum in the near term, but the index needs to break below the robust support level first.

Dollar Index 


The index found support at moving averages recently and has traded slightly above 102 since then. The upside momentum, however, was capped by the long-term resistance, causing the index to trade sideways. The indicators point to a growing upside momentum: the %K/%D is seen diverging on the upside, further into the overbought. The MACD diff is positive and is diverging, suggesting a strong conviction for higher levels. To suggest this momentum, the index first needs to break above 102.50. A break above this level could signal a further upside to 103. Alternatively, if trend resistance holds, a breach of 200 MA at 101.81 level could set the scene back to 50 MA at 101.56. We expect some moderate upside in the near term but for the robust resistance to cap any strong momentum.



The pair declined sharply in recent months, falling below the support level of 18.00, but found support at 17.54 in recent days and trading slightly above that level today. This suggests that this support level is holding firm, and we could see some moderate upside. The indicators confirm this, with %K/%D diverging on the upside out of the oversold, and the MACD diff is about to positive and diverging. To confirm the change of trend, the pair needs to break above the longer-term moving averages, which are now trading at 17.78 before 17.90. Alternatively, if moving average levels hold, we could see the pair test the 17.50 level once again. The indicators point to a sharp trend reversal in the near term, and to confirm this, the pair needs to break above the resistance at moving averages first.



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