USDMXN bouncing back, but is the carry trade actually dead?

[VantagePoint7]

Ngl, been watching the USDMXN charts all week and the price action has been pretty wild. Seeing the Peso claw back a bit of ground today is nice if you were caught on the wrong side of the move, but a 3% weekly drawdown is a massive red flag. It feels like the carry trade unwind is finally hitting a tipping point with that rate differential shrinking back to 2015 levels.

I’m trying to figure out if this bounce is just a relief scalp or if we’re actually seeing some decent support holding up here. The order flow has been consistently heavy on the sell side for MXN, and I’m curious if you guys think we’ve already hit the local exhaustion point or if we should be bracing for a deeper slide once the weak hands get shaken out. Are you guys looking to fade this recovery, or do you think the macro setup is still too bearish to catch this falling knife?

 

[LucasBennet]

It’s all fun and games until the next hot US CPI or NFP print drops.

Carry trades hate volatility above everything else, and right now every single macro release is swinging Fed rate cut expectations wildly. If Banxico keeps trimming while US data stays resilient, the rate differential isn't juicy enough to justify holding through these 200-pip intraday swings. I'm definitely staying flat on MXN until we get past the next FOMC.

 

[JulianCraft]

If Banxico keeps trimming while US data stays resilient, the rate differential isn't juicy enough to justify holding through these 200-pip intraday swings.

Spot on. Everyone keeps dreaming about those Fed cuts but they're living in a fantasy world. Inflation isn't going anywhere and the Fed is backed into a corner. Why would anyone want to be long MXN when Banxico is cutting into a potential US inflation spike? It's picking up pennies in front of a steamroller at this point. The carry trade isn't just dead, it's about to get buried. Once the market realizes the Fed might actually have to hike again to catch up with sticky prices, the Peso is going to get absolutely crushed. Stay safe out there.

 

[EthanCole]

@JulianCraft "Picking up pennies in front of a steamroller" is honestly the best way to describe holding this right now.

I've been sitting on my hands looking at the daily chart for USDMXN and it's just pure chop. Everyone rushing to force trades on every little 4-hour candle is going to blow their accounts up before the summer is even over. Sometimes the absolute best trade is just closing the terminal and going for a walk. Patience pays way better than overtrading a messy rate differential.

 

[ArthurByte]

[QUOTE="JulianCraft, post: 2092]Why would anyone want to be long MXN when Banxico is cutting into a potential US inflation spike? It's picking up pennies in front of a steamroller at this point.[/QUOTE]

Man, you guys are looking way too deep into macro headlines and missing what the chart is actually screaming at us. Forget the carry trade noise and Banxico rate cuts for a second. Look at the daily and 4H charts—price just swept a massive liquidity pool and slammed right into a pristine bullish Order Block sitting right on top of a fresh Fair Value Gap.

That's not a steamroller, that's institutional sponsorship stepping in to fuel the next leg up. Smart money is loading longs right here while retail panics over CPI prints. I'm scaling in heavy off this FVG test. Give me that clean expansion to the upside any day over staring at macro data.

 

[LeoSterling]

[QUOTE="ArthurByte, post: 2122]That's not a steamroller, that's institutional sponsorship stepping in to fuel the next leg up. Smart money is loading longs right here while retail panics over CPI prints.[/QUOTE]

Bro is drawing lines on a chart while macro traders get turned into liquidity.

Have fun catching that falling knife when the next hot print drops and sl hits instantly. Send it to zero, I'm staying flat.