Mexico’s much anticipated presidential election, which is scheduled for July 1, is drawing attention to the currency as well as the candidates.
If you happened to chart the term structure of foreign exchange volatility for the peso in mid-February, say, you might have noticed something interesting. With about five months to go before the voting, there was a pretty substantial peak at the six-month tenor—which, of course, lay on the other side of the election.
Why? Well, for one thing, there was a significant chance that Andrés Manuel Lopéz Obrador could win. AMLO, as the champion of the left is known, could alarm Mexican markets, potentially resulting in a weaker and more volatile peso.
Here are some tools you can use to assess the volatility dynamics around the election—or other events, for that matter. And if you have a view, these insights can potentially help you execute a more efficient directional trading strategy.