MEXICO: Peso Extends Weakness Amid TSY Curve Twist Steepening
May-22 12:50
- Lower-than-expected March economic activity in Mexico appears to be assisting the latest recovery for USDMXN, which extends its intra-day advance to 0.40% in recent trade. Furthermore, the surprising rise of headline CPI in the mid-May read plays into domestic stagflationary concerns and could signal that the short-term USDMXN recovery has further to run.
- Alongside this domestic backdrop, the ongoing twist steepening for the treasury curve and associated weakness for equities on US fiscal concerns is providing another headwind for the peso, as more typical risk off sentiment dominates the sell US theme.
- For USDMXN, first resistance is at the 20-day EMA which intersects around 19.53. Further out, strong resistance is found between the breakdown points of 19.7556 (US election related lows) and 19.8473 (March and early April lows).
- CIBC pointed out that the market continues to price the overnight terminal rate between 7.25%-7.35%, 50-60bps above their 6.75% forecast, supporting their upside USDMXN bias from current levels.
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US TSYS: Post-Philly Fed Non Mfg React
Apr-22 12:38
- Little reaction to the much lower than expected Philadelphia Fed Non-Mfg Activity data.
- Treasuries remain mixed, curves flatter (2s10s -4.066 at 60.135) with the long end outperforming, 10s steady: TYM5 at 110-25.5, 10Y yield -.0196 at 4.3910.
- TYM5 remains inside technicals: support at 110-15/109-08 (Low Apr 15 / 11 and the bear trigger), resistance above at 111-01+/17+ (20-day EMA / High Apr 16)
- Cross asset: Greenback off yesterday's lows, Bbg US$ index +2.18 at 1218.32, Gold still higher at 3452.0 after just trading to new all-time high of 3500.10 overnight; stocks recover small ground after Monday's rout: SPX eminis +43.0 at 5228.0.
