The Bear Who Beat Brexit Has a New Warning for the Pesoby
Caudillo used technical analysis to call post-Brexit peso drop
Monex strategist now sees currency falling to 21 per dollar
On June 23, as Mexico’s peso was in the middle of its longest rally in two years while U.K. voters looked poised to reject a so-called Brexit, currency strategist Juan Francisco Caudillo took his peers by surprise. He told his clients to sell the peso.
The world knows how that story ended. Investors awoke the following morning to discover U.K. voters had chosen to leave the European Union after all. And colleagues who a day before had called Caudillo crazy wished they’d followed his lead when the peso plunged as much as 7 percent within a few hours.
How the 38-year-old strategist at Monex Grupo Financiero proved so prescient wasn’t a matter of somehow being more attuned to U.K. voter sentiment than his peers, but rather ignoring it altogether. Instead, Caudillo said he relied on technical analysis to make the call. What’s more, those same charts he used to predict the peso’s drop then are now pointing to an even bigger slide ahead.
“People are used to using logical, causal reasoning; they need a specific explanation for what they see,” he said from Mexico City. “My work is based on identifying patterns rather than finding any sort of cause behind how the market behaves.”
Caudillo’s technical analysis, based on both Fibonacci and harmonic trading models that try to predict investor behavior and identify market patterns, shows the peso breaching 21 per dollar by the end of September. That’s 10 percent weaker than Wednesday’s close of 18.8328. The currency fell 0.3 percent to 18.8879 at 2:13 p.m. Thursday in New York.
It’s a call that makes Caudillo the most bearish of the peso bears. While Citigroup Inc. said July 25 the peso could go as low 22 per dollar, that’s only if Republican nominee Donald Trump ends up winning the U.S. presidential election in November. Barring that, the peso will likely end the year around 18.90, Citigroup strategists say. Credit Suisse Group AG, whose peso estimate is the most bearish in a Bloomberg survey, forecasts the peso to weaken to 20.02 per dollar.
Caudillo has been right before: On Jan. 19, as the price of oil was in a free-fall, he went on cable television to say that Mexico’s peso, down 6 percent in the first two weeks of the year, would be supported by a rebound in crude. Within a few weeks, oil hit a 12-year low and started to rally -- and so did the peso. (While oil is still up, the currency has since wiped out most of those gains.)
“People sometimes don’t believe me,” Caudillo said. “But I’ve been doing this for 16 years, and I’ve been able to incorporate tools that make my technical analysis more efficient.”