MEXICO: USDMXN Pulls Back After Printing New Cycle Highs, Trump/Banxico Awaited
Jan-17 10:48
- Standing out in global currency markets ahead of Trump’s inauguration is the strong rally for USDMXN. The pair remained well bid throughout the entirety of Thursday’s session despite a moderate dip for the dollar index. After rising 1.85% overall, this trend extended in early Friday trade, with spot printing a fresh cycle high in the process at 20.9382, before dipping back to unchanged in most recent trade.
- Market participants appear to be on the defensive as details on bilateral relations under a Trump administration, including tariff announcements, are awaited. Furthermore, the softer US CPI data and subsequent dovish Fed repricing may bolster the chances of Banxico accelerating the easing pace in on February 06.
- On Thursday, CIBC suggested going long CAD/MXN with a target of 14.95 and a stop loss at 14.00. While the tariff threat may look to hit each country equally, CIBC believe the peso would remain most vulnerable given USDMXN sees around 2x the volatility of USDCAD. Additionally, they highlight Mexico’s credit rating concerns leave MXN particularly exposed to further tariff headlines.
- Separately, Morgan Stanley upgraded Mexican stocks to equal-weight from underweight, citing better a risk-reward from the potential impact of policy coordination with the US.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
GILTS: 10-YEar Yields Test Next Resistance
Dec-18 10:44
Futures through next Fibonacci support at 92.78, with the next projection from the same sequence located less than 15 ticks below prevailing levels at 92.63. We will provide an update covering some longer-term technical levels shortly.
- 10-Year yields testing their November 14 high at 4.566%.
EGBS: Bund Futures Off Highs; German Curve Twist Steepens
Dec-18 10:43
Bund futures have moved away from session highs but have traded in a tight 30 tick range this morning. Futures are currently -30 ticks at 134.54, with initial support at 134.39 (Dec 13 low).
- The current bearish cycle in Bund futures remains in play and the contract continues to trade closer to its recent lows. Sights are on 133.98, a Fibonacci retracement point. Clearance of this level would strengthen the current downleg.
- ECB’s Chief Economist Lane’s webcast with MNI has concluded. His remarks were generally not market moving.
- Eurozone November Final HICP was revised down a tenth from the rounded flash reading on an annual basis to 2.2%Y/Y from 2.3%Y/Y - unrounded this was a smaller -0.04 revision to 2.24% Y/Y (vs 2.28% flash, 2.00% prior).
- The German cash curve has twist steepened, with 2-year yields 1bp lower and 30-year yields 3bps higher. German swap spreads have narrowed month-to-date, with the long end leading the move.
- The 10-year OAT/Bund spread remains above 80bps. There is still no schedule for PM Francois Bayrou to name the parties that will form his new administration or the individuals that will sit in his Council of Ministers.
- 10-year peripheral spreads to Bunds are also biased a little wider today.
- Broader macro focus remains on the FOMC decision later this evening.
ECB: Lane: Structural Bond Portfolio Will Be For Liquidity Provisions
Dec-18 10:35
Q: Any thoughts on the optimal size of the balance sheet?
Lane: “I think that reflect will reflect to where we live in because remember, by and large, most of the balance sheet expansion reflected the shocks we face”.
- “I think it's natural to have a role for structural operations, whether that's structural refinancing or the including a structural bond portfolio”.
- “It’s fairly universal that the banks need and want more liquidity than they had 15 years ago”…. “so working out the kind of steady state way to supply that liquidity across our instruments will influence the size of the balance sheet in the long term”.
- “The primary role of the structural bond portfolio will be to provide liquidity. Its scale will reflect liquidity provision”…. “It's not going to have the scale of a kind of QE type program”
- Lane also re-iterates that the best way to impact the monetary stance is the policy rate, when away from the lower bound.
