The Ottawa round of NAFTA negotiation have turned nasty. The first causality has been the driving ethos of globalizations and cooperation, replaced with strong protectionist bias. In this negative environment, missteps were bound to occur. MXN was rocked (despite of wide spread EM strength) as news that Mexico’s Finance Minister Meade was developing trade alternatives and tariff measures in case the NAFTA negotiations disintegrated. In additions the US assistance of inclusion of a “sunset clause” that would allow for the agreement renegotiation every five years. Rumors have plagued discussions that Trump was having side conversations with Canadians Trudeau on potential bilateral agreements.
All side quickly dismissed the “fake” news saying it was critical to secure a multilateral agreement between all three nations. However, the optics of smiling Trudeau and grimacing Meade are telling. In our view, the probability of the full blow break up of NAFTA has increased significantly. Further MXN depreciation is expected, as markets has not incorporate fully the necessary risk premium. Breaking up NAFTA was a popular theme on Trump campaign and remains an area he has near total control over. USDMXN break of 200d MA suggest extension of bullish momentum towards triple top resistance at 19.25.
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