Latin America

It ain't pretty out there.

These markets are under continued and very steady pressure. Brazil and Mexico are leading the weakening trend but only because they are the most developed and had the most invested in them to start. I think the big reasons for this are

1. Commodity prices. They have been consistently trending lower for the last few months and as such currencies dependent on them have come off. Brazil, Mexico, Chile, Australia, New Zealand to name a few.

2. Over speculation by local corporates. Just reading articles on Bloomberg and the WSJ is enough to tell you that alot of local currencies leveraged themselves thinking that their local currencies would continue to appreciate. Alot of these trades had no thing to do with hedging exposures but rather it was outright speculation on the movement of currency. Now that the currency has changed direction the corporates for lack of a better word are F*cked! This becomes a self fulfilling prophecy, the banks that sold the currency products to the corporates know that they have a problem and begin to worry about margin calls (are we going to receive our money?) and such. Word starts to spread, hedge funds try to front run the market and this triggers margin calls which then force the corporates to close out their position (if they have the money to pay back the losses). All the while everyone is buying dollars.

Today the Brazil flirted with limit up for a good deal of the day and closed within spitting distance of the level. It the market was open another 30 minutes or so it certainly would have closed there. Mexico closed near the highs of the day also and I see little that will prevent the market from opening considerably higher tomorrow morning.

TRADES.

Remain short Euro. I am still looking for us to trade sub 1.3000 (we closed at 1.3070 ish yesterday) and think it will happen today.

Long dollars against all Latin American currencies. I think you start with Usd/Mxn, follow with Usd/Brl....do a little Usd/Clp and Usd/Cop for good measure. There is no reason to be short dollars in this region. Please remember that I am keeping my positions on the smaller side and will take profits quicker then usual as the market dynamics are changing quite quickly. No need to be a hero.

Good Luck and Good Currency Trading.