USD PRESIDENTIAL ELECTION - SELL MXNJPY - RISK & SENSITIVITY
Updated
Presidential Election - Trump wins - MXN more sensitive than USD, Yen to pick up the risk-off shift:
1. Positioning for a trump win is much more interesting than a hilary win but nonetheless both should be profitable at some level. My number 1 position will be SHORT MXNJPY for a number of reasons 1) MXN has been very sensitive to the USD election given trade claims made by trump which would likely have a greater than brexit effect on the Peso. This in mind however MXN has been rallying recently as Trump winning odds have filtered into more of a tail probability. Nonetheless this just opens up great opp for profit in the even he does win (e.g. MXNJPY has rallied from 5 to 5.5 in the past few weeks as trump winning is being discounted, this opens up a whole 500pips of reward in the event he does win and MXN is shorted due to its sensitivity).
- Further the reason i have chosen XXXJPY rather than XXXUSD as a denominator for the MXN short is because JPY is likely to rally as risk sentiment sours given trump is likely to create great global geopolitical tensions, thus risk-off demand is likely to trade through the roof. Not to mention being long USD vs MXN also will have muted gains given USD is also likely to be a political-economic victim of trump win volatility.
- Term structure for the MXNJPY shorts imo will play much like GBPXXX downside has, the Trump uncertainty is likely to weigh on both the USD and MXN until at least the end of the year given policy intervention/ settling in will take this time. Thus i will be running this position for several weeks after election (i dont think we will see anyone buying the dip this side of 2017.
Presidential Election - HIlary wins - Long MXNJPY possible but USDJPY bids perhaps makes better sense:
1. The inverse of the above is obviously to buy MXNJPY in the event of a Hilary win. HIlary imo is the neutral decision given her lust to be in the pockets of corporations. MXNJPY bids make equal sense however i think USDJPY will be better suited since MXNJPY forgo's the added topside USDJPY will gain through the FOMCs likely Dec hike plus MXNJPY has already rallied 10% in recent months into the election so calls for futher topside will likely be limited. USD on the other hand has remain relatively neutral in terms of Presidential flows. Yen will devalue in both cases as risk-off demand is flushed out.
Trading Strategy - Trump SHORT MXNJPY, Hilary LONG USDJPY:
1. Short MXNJPY at mrkt as soon as the news is heard, perhaps 50% TP at 5.00 and 50% hold for a few days/ weeks.
2. Long USDJPY at market as soon as the news is heard, targeting 108,109,111.
1. Positioning for a trump win is much more interesting than a hilary win but nonetheless both should be profitable at some level. My number 1 position will be SHORT MXNJPY for a number of reasons 1) MXN has been very sensitive to the USD election given trade claims made by trump which would likely have a greater than brexit effect on the Peso. This in mind however MXN has been rallying recently as Trump winning odds have filtered into more of a tail probability. Nonetheless this just opens up great opp for profit in the even he does win (e.g. MXNJPY has rallied from 5 to 5.5 in the past few weeks as trump winning is being discounted, this opens up a whole 500pips of reward in the event he does win and MXN is shorted due to its sensitivity).
- Further the reason i have chosen XXXJPY rather than XXXUSD as a denominator for the MXN short is because JPY is likely to rally as risk sentiment sours given trump is likely to create great global geopolitical tensions, thus risk-off demand is likely to trade through the roof. Not to mention being long USD vs MXN also will have muted gains given USD is also likely to be a political-economic victim of trump win volatility.
- Term structure for the MXNJPY shorts imo will play much like GBPXXX downside has, the Trump uncertainty is likely to weigh on both the USD and MXN until at least the end of the year given policy intervention/ settling in will take this time. Thus i will be running this position for several weeks after election (i dont think we will see anyone buying the dip this side of 2017.
Presidential Election - HIlary wins - Long MXNJPY possible but USDJPY bids perhaps makes better sense:
1. The inverse of the above is obviously to buy MXNJPY in the event of a Hilary win. HIlary imo is the neutral decision given her lust to be in the pockets of corporations. MXNJPY bids make equal sense however i think USDJPY will be better suited since MXNJPY forgo's the added topside USDJPY will gain through the FOMCs likely Dec hike plus MXNJPY has already rallied 10% in recent months into the election so calls for futher topside will likely be limited. USD on the other hand has remain relatively neutral in terms of Presidential flows. Yen will devalue in both cases as risk-off demand is flushed out.
Trading Strategy - Trump SHORT MXNJPY, Hilary LONG USDJPY:
1. Short MXNJPY at mrkt as soon as the news is heard, perhaps 50% TP at 5.00 and 50% hold for a few days/ weeks.
2. Long USDJPY at market as soon as the news is heard, targeting 108,109,111.
Note
PS if you are wondering about MXNJPY liquidity or availability you can get equal exposure by: SHORT USDJPY AND LONG USDMXN - the short/ long usd cancel out the USD position thus leaving the short MXN and long JPY.
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