LATAM FX: Price Signal Summary – USDMXN Gains Considered Corrective
- The trend condition in USDMXN is unchanged, it remains bearish and another fresh cycle low, Wednesday, reinforces bearish conditions. This confirms a continuation of the downtrend and maintains the sequence of lower lows and lower highs. Note that moving average studies are unchanged, they remain in a bear mode position, highlighting a clear downtrend. The move down has resulted in a break of the 19.00 handle. Further out, potential is seen for an extension towards 18.7774, the 50.0% retracement of the Apr 9 ‘24 - Feb 3 bull leg. First resistance is at 19.2131, the 20-day EMA. The 50-day EMA is at 19.5049. Gains are considered corrective.
- USDBRL maintains a bearish tone. The pair has traded below key support at 5.5933, the Apr 3 low. Sights are on 5.5065, the 50.0% retracement of the Jul ‘23 - Dec ‘24 bull cycle. A break of this level would open the 5.40 handle. Firm resistance to watch is 5.7632, the May 7 high. Clearance of this level would instead highlight a potential reversal. Initial resistance is at 5.6205, the 20-day EMA.
- USDCLP is trading in a range. A bear threat remains present following recent weakness and short-term gains are considered corrective. Scope is seen for a deeper retracement towards 914.00, the Mar 18 low. Resistance to watch is 961.64, the Apr 30 high. Clearance of this level would signal a stronger reversal and refocus attention on 1007.75, the Apr 9 high.
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CROSS ASSET: Bund Block trade, US 10yr Yield tests 4.50%
Bund block trade, suggest seller
- RXM5 3.23k at 129.51.
Worth keeping an eye on the US Tnotes (TYM5), while Yesterday's low is at 109.30, the 4.50% Yield is circa 109.28+, now at 4.496%.
The Yen is unaffected still, but further breakout lower in TYM5 might provide some demand in USDJPY.
CANADA DATA: Canada Mar Building Permits Fall But Q1 Shows 5th Straight Increase
- March building permits -4.1% to CAD12.9B, StatsCan says Wed.
- Decline driven by non-residential sector -15% to CAD4.2B mainly due to a significant drop in commercial with Ontario posting more than half the decrease.
- Residential permits +2% to CAD8.7B on multi-family units, while single-family units -5.3%.
- Permits +15% YOY.
- On a quarterly basis, building permits +2.9% to CAD39.1B, fifth straight gain. Multi-family housing +9.6% to record high CAD17.3 billion, led by Vancouver projects.
GERMANY: Merz' Government Declaration Overall Close To Coalition Agreement
Chancellor Merz concluded his inaugural government declaration, overall remaining close to his CDU/CSU/SPD coalition agreement. Generally, he highlighted making competitiveness a key parameter in economic policy, preserving jobs in industrial manufacturing, and budget consolidation (increasing efficiency of measures) as key goals for his administration. Concrete measures announced include the below:
- Accelerated depreciation on private investment: 30% of acquisition costs deductible per year over 3 years, starting to reduce enterprise taxes in 2028
- Imposition of a 12-year infrastructure package
- New free trade initiative proposed in the EU (mentioning MERCOSUR, US)
- Enabling enterprise formation within 24 hours
- Reduction of reporting obligations for enterprises
- Introduction of an 'early start-retirement pension' (Frühstartrente; from 2026, children from age 6 receive E10/month in an individual, publically funded and privately managed retirement savings account. Fiscal costs costs would amount to ca. E1bln/year)
- CO2 pricing as a core component of climate policy, revenues should not flow into the budget but be distributed Sticking to European climate targets
- Maximum weekly working hours instead of daily maximum to increase labour flexibility
- Government believes the E15/h minimum wage by 2026 is achievable and desirable, but will not enshrine the goal in law - minimum wage commission remains in place
- "Trusting" the agricultural sector: Relying on voluntary action and personal responsibility of farms (this announcement saw a positive reaction in German chemical equities)
- Prioritizing integrating immigrants into the labor market as quickly as possible
- More collective bargaining in the labour market
- Intensify cooperation with Asian partners (mentioning China, some other APAC countries)
- Deepening cooperation with UK on defence
Next in the German domestic politics calendar will be finance minister's announcement of updated tax estimates tomorrow - Handelsblatt sources flagged this will result in a downward revision following lower GDP forecasts ('GERMANY: German Tax Revenue Estimates To Be Downwardly Revised - HB' - May 13).
