US-Iran truce in sight: a global rally, and the peso jumps on board

Hoy se respira otro aire en los mercados — el rumor de un acuerdo preliminar de paz entre Estados Unidos e Irán, que se firmaría esta semana en Suiza, le devolvió el oxígeno al apetito por riesgo de un jalón.

Today the markets are breathing different air — rumors of a preliminary peace agreement between the United States and Iran, set to be signed this week in Switzerland, gave risk appetite a sudden shot of oxygen.

The data

Asia kicked off the party: the Nikkei and Kospi are up nearly 5% on the session, their best day in months. In the United States the rally feels broad-based — equities are up as much as +2.40% on the day — and bonds are joining the celebration as well, with yields falling 2 to 5 basis points across the curve. The implied probability of a Fed rate hike by year-end dropped to 70%, right ahead of Wednesday's decision: the market is reading the truce as a signal that the Fed has a little more room to hold off on tightening.

The peso

The dollar is taking the worst of it: the DXY falls 0.30% and breaks below the 99.50 floor, something we had not seen in weeks. With the dollar broadly weak, emerging markets are gaining across the board, and the peso is no exception. USD/MXN is testing the 17.15–17.18 support zone; if the optimism holds through the close, the next natural target is a break below that zone, opening the door toward 17.10. To the upside, immediate resistance sits at 17.22–17.25 — the zone to watch should the rally reverse.

Index reading

The VIX plunges 7.4% and touches year-to-date lows again — the clearest signal that the market is buying into the truce, at least for now. With this, the Risk On index rises to 86, one of the highest readings so far this year. That said, the Fed is still on deck Wednesday, and a "preliminary" agreement can fall apart — so the rally is real, but it would be premature to drop one's guard entirely.