MEXICO: USDMXN Holding Steady Ahead Of FOMC Decision, US Trade Talks Advancing
- Ahead of the upcoming FOMC rate decision at 1800GMT/1400ET, the Mexican peso is continuing to trade in a very tight range against the dollar, despite positive news that trade talks with the US are advancing. Earlier today, Economy Minister Ebrard said that he has agreed with US Trade Representative Jamieson Greer on the next steps in trade talks and is aiming for a deal before the 2026 USMCA review.
- USDMXN remains in consolidation mode with the pair still operating in a very tight 18.36-46 range this week, ~1% above the recent cycle lows around 18.20.
- The trend condition in USDMXN is bearish, however, and a move below the recent cycle lows would open the 18.00 handle. On the upside, a clear break of the 50-day EMA at 18.4995 would signal scope for a stronger short-term recovery and instead open 18.8637 initially, the Sep 2 high.
- Following the Fed rate decision, attention will turn to tomorrow’s Mexico Q3 GDP stats, where the economy is seen contracting by 0.4% q/q and 0.3% y/y. The weakness in activity is expected to support a further 25bp rate cut at the next Banxico MPC meeting, scheduled for Nov 6.
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GBPUSD TECHS: Remains Below Resistance
- RES 4: 1.3789 High Jul 1 and key resistance
- RES 3: .3661/3726 High Sep 18 / 17
- RES 2: 1.3537 High Sep 23 1
- RES 1: 1.3485 50-day EMA
- PRICE: 1.3421 @ 16:12 BST Sep 29
- SUP 1: 1.3324 Low Sep 25
- SUP 2: 1.3282 Low Aug 6
- SUP 3: 1.3254 Low Aug 4
- SUP 4: 1.3144 38.2% retracement of the Jan 13 - Jul 1 bull cycle
GBPUSD traded lower last week, marking an extension of the current bear cycle that started Sep 17. The move down has resulted in a break of 1.3491, a trendline support drawn from the Aug 1 low. This undermines a recent bullish theme. Note too that 1.3333, the Sep 3 low and a key support, has been pierced, opening 1.3282 next, the Aug 6 low. Initial key resistance to watch is 1.3537, the Sep 23 high. A break of it would signal a reversal.
BONDS: EGBs-GILTS CASH CLOSE: Bull Flattening As Euro Inflation Week Unfolds
European curves bull flattened Monday.
- Bull flattening started early, with a looming federal government shutdown in the US setting a cautious undertone.
- BOE's Ramsden sounded to be on the dovish side in an appearance and does not appear to be guiding away from a vote for a November cut so far.
- Data didn't have a major market impact. Spanish flash September core HICP was slightly softer than expected, while Eurozone economic confidence slightly above-consensus. BOE credit data was largely in-line.
- UK instruments slightly outperformed German counterparts across most of their respective curves, with the most notable divergence being at the short end.
- Periphery/semi-core EGB spreads closed mixed, with France underperforming amid continued fiscal uncertainty (Friday saw Spain upgraded by Fitch/Moody's and France's outlook lowered by Scope).
- The Eurozone flash September inflation round continues Tuesday with French, German and Italian data, with the bloc-wide figure out Wednesday. MNI's preview is here. We also get UK GDP data Tuesday, as well as several central bank speakers including BOE's Breeden and Mann, and ECB's Lagarde.
Closing Yields / 10-Yr EGB Spreads To Germany
- Germany: The 2-Yr yield is down 0.7bps at 2.023%, 5-Yr is down 2.3bps at 2.312%, 10-Yr is down 3.9bps at 2.707%, and 30-Yr is down 5.6bps at 3.272%.
- UK: The 2-Yr yield is down 2.7bps at 3.988%, 5-Yr is down 3bps at 4.145%, 10-Yr is down 4.6bps at 4.7%, and 30-Yr is down 5.2bps at 5.509%.
- Italian BTP spread down 0.9bps at 82.6bps / French OAT up 0.5bps at 82.7bps
US: FED Reverse Repo Operation Rising Into Month End
RRP usage climbs to $56.220B ahead month end with 26 counterparties this afternoon from $48.073B Friday. Compares to $11.363B on Friday, September 16 - lowest level since early April 2021. The year's high usage stands at $460.731B on June 30.
