We could smell sort of scope for MXN's depreciation further this week against dollar gains ground after the NFP (211K vs forecasts at 201K), unchanged unemployment at 5.0% and EUR squeezing higher.

MXN seems comparatively softer upon this week's inflation print for November on Wednesday and Industrial production on Friday.

On the former, our forecast is consistent with a biweekly inflation of 0.08% 2w/2w in the second half of the month as we expect additional price increases in perishable goods while core inflation should have remained muted.

Annual inflation should remain at 2.3% y/y with core at 2.35%. For the latter, the forecast is consistent with a 0.3% m/m sa expansion as a result of the observed increases in US manufacturing and oil production (0.4% and 0.2% m/m sa respectively) partially offset by the contraction in automobile output (-0.3%).

A fragile global economic outlook and the recent postponement of the start of rate normalization in the U.S.

Hence, we believe the Banxico continues to stress the lack of traction in economic activity (both domestic and external), and we also believe the emphasis next week will be on lukewarm external demand and the risks embedded in the deceleration of the two biggest economies in the world.

Trade tip: MXN among few EM currency space typically held in carry basket seem cheap on a real effective exchange rate basis, sell 1M USD/MXN ATM calls vs buy 6M OTM delta calls, use European style options.