Oil craters 6% and eases the 10Y: peso opens firm at 17.46, score jumps to 57

Happy Monday — let's get the week going!

Crude throws in the towel and decompresses everything

The weekend redrew the board. The pause in U.S.–Iran strikes and the Iranian ceasefire slammed WTI down 6.04% to 83.92, with Brent shedding over 8% back toward 90.

On Friday we flagged crude as the engine of the curve's stress. Today that engine stalls: the oil rally that pushed the 10Y to multi-year highs runs out of fuel.

Don't declare victory yet: Brent is still up ~40% on the month and the Houthis claimed strikes on Aramco over the weekend. This is decompression, not surrender.

17.46: the peso trades on top with its premium intact

USD/MXN opens at 17.4616, a hair in the local unit's favor and hovering near its strongest print of the year. The greenback looks too weak to challenge the 17.5531 resistance we drew on Friday.

The Banxico–Fed gap at 2.87pp underpins the peso's appeal, and with realized vol at just 6.38% the carry is cheap in risk terms. A flat DXY at 101.42 offers the dollar no help.

The relevant floor stays at 17.3612. As long as crude cooperates, the pair's bias points lower.

The long end eases, the front stays anchored

The 10Y retreats to 4.64%, giving back 13bp of last week's scare. The move is purely crude-driven: less inflation premium, less pressure on the long end.

The curve keeps its positive slope with 2s10s at 0.34pp. An incipient bull steepening if the front end stays pinned to Fed expectations while the long end keeps relaxing.

The level to watch is 4.70%: as long as the yield doesn't reclaim it, the peso story breathes.

Wednesday is about the tone, not just the rate

The July 29 FOMC is the real test. Consensus leans toward holding at 3.50%-3.75% (~65%), but a third of the market prices a hike on oil. With no new dot plot, Powell's script is what moves the tape.

At home, biweekly inflation at 3.10% —lowest since 2020— and soft activity data open the door to a Banxico cut on August 6. That would compress the differential later, but it doesn't weigh today.

Market view: with the crude relief and the rate premium firm, the bias favors the peso toward 17.3612 near-term. I turn neutral if the 10Y reclaims 4.70% on a sustained basis or the pair closes above 17.5531. Opinion, not instruction.

The Risk On score jumps from 46 to 57, CONSTRUCTIVE: the oil collapse and a sub-55 peso lift the gauge, but FOMC risk keeps it from a clean green.

— See you tomorrow for Tuesday's view.