This paper uses financial and macroeconomic variables to predict currency returns, by using a two-step procedure. The first step consists of a cointegration equation that explains the exchange rate level as a function of global and domestic financial factors. The second step estimates an error-correction equation, for modeling the expected returns. This approach is a factor model analysis, where a Lasso derived technic is used for variable selection. This paper will focus on the main Latin American currencies, Brazil(BRL), Chile (CLP), Colombia (COL), Mexico (MXN) and Peru (PEN), during the time horizon from Decem-
ber 2001 until February 2016. The rst nding is that Global Exchange Rate Factor oers information about the exchange rate movements. In addition, this paper shows that commodity, equity prices and domestic risk premium are important variables for explaining exchange rates. Moreover, conrm the existing results for the carry and slope variables.