Near-term stability for MXN and BRL

After the recent sell-off in EM currencies, MXN and BRL should find some support next week as markets digest the recent events regarding China. Although some short-term correction seems plausible due to heavy positioning, 16.50 and 3.45 are attractive levels to re-establish USD long positions in MXN and BRL, respectively, targeting 17.25 and 4.00.

 Next week is light in data from MXN. In Brazil, the main event is Wednesday's meeting of the Copom. Recent BRL underperformance and the loose fiscal policy stance threaten the anchoring of inflation expectations. 

"On the other hand, a disappointing economic performance with no signals of improvement calls for policy easing, which is expected to occur by the end of Q1 2016. As such, the Selic overnight rate is expected to stay put at 14.5%", says Barclays. 

In addition, on Monday, the economic team should submit the 2016 budget plan to Congress with the measures that the government is considering in order to reach its target of 0.7% of GDP for the primary balance, part of Brazil's plan to achieve fiscal stability, which will be very hard to reach.