Tensions between the US and Mexico may be the worst since 1920 - BBH

In view of the analysts at BBH, tensions between the US and Mexico may be the worst since 1920 were when US President Coolidge threatened to invade.  

Key Quotes

“Trump has some discretion as US President but the idea of a 20% tariff on Mexican imports to pay for the wall is bluster.  First, it violates the NAFTA agreement.  Second, if there were not NAFTA, it would violate the WTO.  Third, the President would need Congressional support.  He can impose a 15% temporary tariff claiming a balance of payments emergency, but this is extreme.  Fourth, Mexico could retaliate.”

“Trade between the two countries is very complex.  Some goods may cross the border several times before final good is finished.  Research suggests that as much as 40% of the content of Mexico's exports originate in the US.  Several European and Japanese automakers have production facilities in Mexico.  If new tariffs become onerous, their production may not be moved to the US, but instead could go home or to a third country.”

“Earlier in the week, we noted the potential double top in the dollar near MXN22.00.  The neckline near MXN21.50 was violated.  The minimum measuring objective was near MXN21.00, which has been marginally surpassed (yesterday's low was near MXN20.86). The peso has fared well despite the escalation of tensions. The peso is trading with a lower bias today, but it is poised to snap a six-week slide.  Even with the small losses showing now, the peso is up a little more than 1.6% on the week.”