MEXICO: Fresh Cycle Lows for USDMXN Below 18.30
Sep-17 11:04
- Domestic markets in Mexico reopen on Wednesday following yesterday’s Independence Day holiday. The local calendar remains light, with just aggregate supply and demand data for the second quarter due Friday.
- Despite the quiet docket, the Mexican peso continues to be bolstered by the broader risk backdrop and associated weakening of the US dollar. USDMXN traded down to a fresh cycle low on Tuesday at 18.2708. Below here, 18.1837 is the next notable chart point, the 61.8% retracement of the Apr 9 ‘24 - Feb 3 bull leg.
- Banorte had expected a weekly range of 18.35-18.75 for USDMXN, evidence that the market may have been caught off guard ahead of the Fed decision. They continue to expect the peso to weaken modestly as trade negotiation-related uncertainty begins to filter into the market.
- In local news, market attention remains focused around the government's plan to impose tariffs on Chinese goods, which according to Mexico-China Chamber of Commerce President and Chairman Amapola Grijalva could halt investment from China in the country. The proposal is a cornerstone of next year’s revenue budget and reflects the financial priorities of President Sheinbaum.
- At 1130 Mexico City time, Mexico will sell MXN1.4b 2028 floating IPAB bonds, MXN1.4b 2030 floating IPAB bonds and MXN1.2b 2032 floating IPAB bonds.
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US 10YR FUTURE TECHS: (U5) Trend Outlook Remains Intact
Aug-18 11:03
- RES 4: 113-23 76.4% retracement of the Sep’24 - Jan’25 sell-off
- RES 3: 113-07 76.4% retracement of the Apr 7 - 11 sell-off
- RES 2: 112-23 High May 1
- RES 1: 112-15+ High Aug 5
- PRICE: 111-25+ @ 11:52 BST Aug 18
- SUP 1: 111-10+ 50-day EMA
- SUP 2: 110-23+/08+ Low Aug 1 / Low Jul 15 & 16
- SUP 3: 110-03 76.4% retracement of the May 22 - Jul 1 bull leg
- SUP 4: 109-28 Low Jun 6 and 11
The underlying bullish theme in Treasury futures remains intact, supported by the recent clearance of the bull trigger at 112-12+, the Jul 1 high. A resumption of gains would open 112-23, the May 1 high and the next important resistance. Above 112-23, retracement levels are layered between 113-07 and 113-23. On the downside, key support is 110-08+, the low on Jul 15 and 16. First important support lies at 110-23+, the Aug 1 low.
US TSYS: J.P.Morgan Recommend Tactical Short Hedge In 3s
Aug-18 10:58
Late on Friday J.P.Morgan recommended a tactical short hedge in 3s to “protect the profits” in their 5s/20s steepener, suggesting that “5s/20s currently appears about 5bp steep adjusted for the level of 3-Year yields”.
- They “have a hard time seeing the case for a deep (Fed) easing cycle. It’s clear that the economy is slowing, but its resilience remains evident”…“Resilience is also being supported by easy financial conditions, as the Fed's Financial Conditions Impulse on Growth index indicates they are a modest tailwind for growth right now”.
- J.P.Morgan go on to flag that “recession risks have declined. Thus, despite an expectation of a more diffuse set of opinions on the FOMC over time, we think it will be challenging to price a more aggressive path for Fed easing unless the labor market loosens decisively from here, given that progress toward 2% core inflation has stalled”.
- As a result, they think “near-term risks skew toward some mean reversion higher in front-end yields over the near term. The biggest risk to this view stems from Chair Powell, as he is slated to speak on the economic outlook at the Jackson Hole Symposium Friday morning. However, with still one more employment and inflation reading ahead of the September FOMC meeting, we do not think the Chair will necessarily pre-commit to or ratify expectations of a cut next month”.
US TSYS: Mild Firmer Ahead Of Trump, Zelenskyy and EU Leader Meetings
Aug-18 10:52
- Treasuries are mildly firmer ahead of today’s geopol-focused session with Oval Office meetings with Trump, Zelenskyy and EU leaders.
- It’s a quiet docket otherwise although a recently notably dovish Bowman is also set to speak on Bloomberg TV.
- Cash yields are 1-2bp lower on the day, paring some of Friday’s slow-to-build post-data losses.
- 5s30s sits at 108bps having on Friday pushed to a fresh ytd high of 109.4bp.
- TYU5 trades at 111-25 (+05+) to help the late Friday lift off lows of 111-17+, amidst light cumulative volumes of 230k.
- Resistance is seen at 112-15+ (Aug 5 high), having come close with 112-14 before Thursday's PPI report, whilst support is seen at 110-19+ (Jul 24 low).
- Data: NY Fed services Aug (0830ET), NAHB index Aug (1000ET)
- Fedspeak: Bowman on Bloomberg TV (1245ET) – see STIR bullet
- Bill issuance: US Tsy $82B 13W & $73B 26W bill auctions (1130ET)
- Politics (timing as per politico): Trump and Zelenskyy only at 1315ET before Trump, Zelenskyy and EU leaders at 1500ET.
