Peso breaks to 17.38 and score jumps to 62 as Section 122 fades

Good morning!

Section 122 lapses Thursday and the market already smells it

Yesterday the catalyst was Iran; today the lens swings to trade. The 10% blanket tariff expires by statute on July 24, and no extension shows on the USTR list.

If it sticks, the U.S. average effective rate drops from ~13.0% to ~7.2%. Less trade friction means less imported inflation and more oxygen for emerging-market risk.

The market isn't waiting for a press release: it's discounting this early. That's the backdrop to this morning's bounce.

The peso slices through 17.38 and flirts with the floor

The super peso flexes again: it trades at 17.3866 (-0.88%), stringing together the best run of sessions this month after closing at 17.43 yesterday. It's already above its 50- and 100-day averages.

The structural engine hasn't budged: the Banxico–Fed gap at 2.87pp, with the local rate anchored at 6.50%, keeps the peso the region's carry darling. With Banxico done cutting, that premium doesn't erode.

My read: the bias favors the peso as long as the currency respects the 17.64 ceiling. The immediate floor at 17.3672 is today's referee.

The 10Y at 4.60% is the pebble in the shoe

The lone offset lives at the long end of the U.S. curve: the 10-year adds nine basis points to 4.60%, with the 2s10s at +0.37pp — still positive but flat.

A pricier Treasury compresses the real rate differential and dulls the peso's shine. That's why the level matters: a sustained break above 4.65%, paired with risk-off, flips me to neutral. As long as yields hold below that line, the rate premium endures.

MOVE at 72.66 says the bond market isn't panicking; the pressure is yield-driven, not volatility-driven.

A loaded calendar: the ECB opens, the FOMC decides

There's no high-impact print today, so flow and positioning run the tape. But the week ahead is dense.

The ECB on July 23 kicks off the central-bank round, followed by the FOMC on the 29th and PCE on the 30th. The base case is a Fed on hold that validates the current carry.

Global appetite backs the picture: gold +1.22%, WTI +0.99% and Bitcoin +1.92% set a constructive tone, and ES futures point +0.34% despite yesterday's -0.19% in the S&P.

All of this explains why the Risk On score jumps from 49 to 62, in CONSTRUCTIVE territory: VIX at 17.88, a firm peso and contained implied vol do the heavy lifting. The wind is at our back — with the 10Y the sail to watch.

— See you tomorrow for Wednesday's view.