US yields climb, peso holds at 16.95: the correlation cracks on the road to payrolls

Happy Friday! Let's close out the week.

A 10-year selloff the peso is shrugging off

The US 10-year backs up to 4.70%, and the textbook says an EM currency should feel that. It isn't happening.

The 20-day correlation between the peso and that yield sits at -0.41 — the currency firms precisely as US rates rise. That's the standout of the session, and it's why USD/MXN opens pinned at 16.9490 with Treasury yields firm everywhere.

The engine is rate advantage. Banxico at 6.50% against a 3.63% Fed leaves a near-three-point cushion that keeps pulling capital into Mexico, with realized peso vol at just 3.61%. As long as it holds, US long rates can grind higher without dragging the local unit along.

What PCE left, what's still ahead

The week's heavyweight already printed: Tuesday's July PCE ran +3.7% year over year on the headline, above the 3.6% consensus, though core landed in line at 3.3%. It came in hot where the Fed cares, and the 10-year added a couple of basis points chewing on it.

Nothing first-tier until US payrolls on September 4, next Thursday. Until then the book is thin and nobody wants directional risk ahead of that print.

Straight talk: today's discomfort isn't in FX, it's in equities. The S&P is up 0.72% at 7,731, but Nvidia (+8.5%) is doing the lifting; the equal-weight closed red yesterday. The appetite I'm reading is one name deep, and that keeps me honest about the risk-on tape.

The view: long peso, with the 10-year five bps from my line

I'm keeping the pro-peso bias. Yesterday I drew the line at a sustained close above 17.16 or a 10-year through 4.75%; neither triggered, but 4.70% now sits five basis points from that post, and I'm watching it closely.

Positioning backs the call: Chicago specs are still net long the peso by 79,452 contracts, even after trimming 4,221 on the week. Support, not a crowd.

While rolling resistance at 17.0720 holds and the rate premium keeps rewarding pesos, the tilt stays with the local currency. Risk On prints 56, CONSTRUCTIVE, a point softer than yesterday, more on limp Bitcoin (-1.10% to 79,375) than any real deterioration.

— Have a great weekend — see you Monday. ☕