Until three weeks ago, the Mexican peso was the star coin of the countries emergents. Today, it is the most losing since then. The reason? A mass sale of pesos made by speculators for cover losses of a record number of contracts that they were betting on a rise in the Mexican currencyexperts said.
In financial slang, the peso suffered a “squeeze“, explain the specialists, which began in February with the nervousness of the market for him coronavirus, and that was exacerbated on Sunday by the fall in oil prices.
The Mexican currency fell in the early morning of Monday up to 14%, after collapse in the international prices, of the raw, although later it reduced the losses to around 4%, to quote around 21 units per dollar.
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“Now there is a great squeeze in several currencies, but the situation in the peso is exacerbated by the illiquidity and market positioning,” said Sacha Tihanyi, deputy director of emerging markets strategy at TD Securities.
The Mexican peso is the most liquid currency in Latin America, which makes it highly sensitive to external events, such as the coronavirus epidemic and the oil war.
A year ago, Tihanyi warned in an analysis note that the large number of long positions on weight, that is, the instruments that bet on an appreciation of the currency, put the Mexican currency in a vulnerable situation.
And it is that until February 14, when it reached its best level in 18 months, the peso accumulated a gain of just over 2% in 2020, against the majority of emerging currencies.
The clash of global volatility caused that investors would sell the peso and they will take the profits obtained up to that moment to cover the losses that they would have in the derivative instruments.
The number of long contracts, which include futures and options, reached an unprecedented level earlier this year, of just over 170,000, equivalent to almost 5,000 million dollars, in the expectation that interest rates would support the peso .
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Forward, specialists expect the Mexican currency to remain weak and bullish positions on the peso to be reduced, although, they say, volatility will continue in the following weeks.
“In the last fifteen days, the peso is the (emerging) currency that has fallen most against the dollar … It is too early to declare that the massive sale of risky assets has ended,” said Jorge Gordillo, director of analysis from CI Banco.
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