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Imagine you’re a big money manager, responsible for stock investments worth millions.

With all the uncertainties in the global economy, you’re afraid of putting money in the stock market. You’re afraid if you invest now you will close the year with a loss. Your clients won’t be happy if that happens. So you prefer to leave a lot of your funds in cash.

But what if the stock market starts to move higher? How would you feel? What will your clients say?

If the S&P 500 equity index starts to move higher, you run the chance of missing the boat. Your portfolio may close the year with a performance much worse than your benchmark. Your clients won’t be happy. You may very likely lose your job.

This fear of “missing the boat” is very important because it may lead to an end-of-year rally in the stock market. It will also lead to opportunities in the forex market. Let me explain…

It’s All About Emotion

I know that a stock market rally now may not make much sense. China is slowing down, and Europe could still blow up at any time. Our economy isn’t doing much better.

But that doesn’t mean we can’t get a short-term rally. Back in October we had the same economic problems we have today. Yet, it turned out to be one of the best months in history in terms of performance.

So if the market starts to move higher, for whatever reason, big institutional investors, who measure their performance relative to the market index, will feel tempted to jump into the market. This should help push stocks even higher.

This psychology could easily trump economic reality in the short-term.

Those who are sitting on the sidelines in cash will start to freak out if the market begins to move without them on board. Their fear of losing money in this market will turn into fear of missing the rally.

If we get this kind of rally, commodity currencies will thrive. I have my eyes on one currency in particular.

Opportunities in the Mexican Peso

If market sentiment improves, commodity-currencies that have been beaten up in recent weeks will most likely rally.

The Mexican peso is a good example. It has been one of the worst-performing currencies in recent months. So it should benefit from a “risk on” scenario.

But there’s another good reason why I’m keeping a close eye on the peso. It tends to move with oil, because Mexico depends a lot on oil revenues. But in the last few months, that correlation has broken down.

Mexican Peso Could Catch up with Oil Soon

Please click here to view larger image

This chart shows the performance of oil and Mexican peso over the past six months. As you can see, oil has had a huge rally in recent weeks. But the peso has barely moved.

I think this will change if sentiment continues to improve.

If we get an end-of-the-year rally in stocks, December will turn out to be a great month for the Mexican peso.

Best Regards,

Evaldo Albuquerque
Editor, Exotic FX Alert
Editor, Currency Capitalist

P.S. The Mexican peso isn’t the only currency you should keep your eye on these days. There is a niche market called “Exotics” and like many investment opportunities, the biggest profits are often found in places where you least expect them. Most currency investors are completely oblivious to the “Exotics” market, but some people have been exploiting it for substantial gains – and it’s poised to dish out even more in the coming months. Our mission here is to spot those opportunities. Just as big money managers don’t want to miss the boat on the coming stock-market rally or the ready-to-rise Mexican peso, don’t miss out on “Exotics” either. For more information, click here.

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