US CPI starts the countdown to the Fed; 10Y at 4.95%, peso at 16.94

Happy Friday! Let's close out the week.

It all hangs on the August CPI

My thesis today: everything else is noise until the US August CPI prints. It's due at 8:30 ET and, as I write, the number isn't confirmed, so I won't invent it. Consensus wants +3.4% y/y headline and 2.4% core, down from 2.5%.

Why it matters so much: yesterday's PPI ran hot on energy, and that leaves the desk worried today's print confirms price pressure just five days before the Fed decides on Wednesday. A hot core tightens the US curve further; a soft one cracks the door for a cut.

Yields already moved

The 10-year Treasury stretched to 4.95%, six basis points above yesterday, and MOVE climbed to 82.09 as bond vol heats up for a second session. The 20-day peso-to-10Y correlation sits at +0.43, which means that when US yields rise, the local currency usually pays for it.

Here's what nags me: the pair opens firmer at 16.94 right as the long end breaks higher. If it holds below 17.04 through the session, that's the peso flexing; if it gives with yields bid, the correlation playbook won. At 7am I don't know which, and I'm writing it as a condition rather than a call.

Holding the dollar, minus one leg

Yesterday I set the pro-dollar line: I drop it if the pair reclaims 16.85, or if crude gives back its gain and the 10Y falls below 4.80%. Crude did retrace (WTI -3.00%), but the long end ran the other way to 4.95%, and 16.85 still holds. My trigger never fired, so the dollar bias stays.

The line that costs me: yesterday I hung part of this thesis on crude at 100, and in a single day oil unwound that leg. What holds the view now is rates, not energy. With the crude leg spent, I trim the condition: I let the dollar go if the 10Y drops under 4.80% or the pair closes below 16.85.

Against me, and I'll own it: Chicago specs are net long peso by 93,247 contracts (COT to Sep 1) and added last week. Positioning isn't on my side.

The score jumps to 64; the peso doesn't follow

Risk On rebounds from 44 to 64 (CONSTRUCTIVE): crude eased, the VIX sits at 16.85 just above its calm zone, Bitcoin is up 1.78%, and S&P futures point higher into the print. Global appetite improved in a hurry, but the currency trades off rates more than mood, and rates are pointing the other way. That's why the thermometer climbs while my view doesn't.

— Have a great weekend — see you Monday. ☕