It's Sunday night in the US and the coming weeks have many of us who have placed risk on bets nervous. The uncertainty as to the resolution of the so-called fiscal cliff spooked markets last week, causing big sell offs in currency and equity markets. On FX, the market ran to the USD and JPY, both posting big gains for the week. USD/MXN kissed 13.25 before closing at 13.2 Friday night. While I remain bullish on the fundamentals, as do the analysts, the short term volatility has certainly raised my blood pressure. I can only take solace in my 'capital firewall.' The USD/MXN could hit 14 again and I would not be forced to close my positions. I am currently raking in about thirty percent annually in carry, and remain confident that I can liquidate at a tidy profit in the neighborhood of 12.8.
The long term trend for USD/JPY remains bullish, and traders would be advised to look for spots to get long. USD/INR is probably overbought in the short term, and the long term outlook may improve as both the RBI and the central government push market oriented reforms. Scotia Bank sees a retest of the 51 level for USD/INR in the coming quarters. I will be watching the situation closely, for now however, my fate lies entirely with the Peso. The key will be not to panic even if the Peso continues to dip as Washington rhetoric heats up. Once it becomes clear that the US is not going off the fiscal cliff, the Peso will resume its mid to long term upward trend.
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