Fed decides tomorrow with Mexico shut: the 10Y nears 5% and the peso opens at 17.10

Good morning!

The calendar is working against the peso this week. The Fed decides tomorrow at noon Mexico City time, but Mexico is closed for Independence Day — local desks won't trade the FOMC reaction until Thursday, reopening into a gap.

A 10-year at the edge of 5%

The US 10-year adds 3bp to 4.99%, pinned against a round number that sits in everyone's head. Behind it is a market now pricing as many as two 25bp Fed hikes by year-end after an August CPI print above target.

With fed funds at 3.63% and the bets tilting toward tightening, the dollar has something to lean on. That rising yield is the mechanism that cost me last week.

Yesterday I paid for the September 7 call; today I close the other tab: the September 8 pro-peso view also failed, with USD/MXN up +0.92% over five sessions. Two peso longs run over in two days, because I underweighted how much the rate gap would matter against the local picture.

Risk appetite bounces, with an asterisk

The risk gauge jumps from 43 to 59 (CONSTRUCTIVE) in a single session, driven by equities: S&P futures are +0.78% pre-market after the cash index closed -0.48%, with the VIX at 17.01 showing no fear.

Bitcoin is the outlier at -1.51% to 76,980, but that's its own beta talking rather than any flight from the risk board. Mexico's IPC, dark today, left yesterday at +0.46% with Femsa and AMX leading.

Long the dollar, with a crack in the thesis

I'm still positioned with the greenback. Yesterday's condition (sell it if the 10-year drops below 4.80% or spot closes under 16.85) never triggered; the yield is going the other way, toward 5%. The line stays.

The honest crack: the peso and the 10-year are decorrelated this month (+0.09), so hanging the whole thesis on yields has a hole. And spot sits 3 ATR above its 20-day mean, and chasing a move this stretched is never comfortable.

The rolling 10-day ceiling climbs to 17.1930 from yesterday's 17.1182, so the range widens on the topside; spot opens at 17.10, with room before it tests that cap. The Fed is tomorrow's judge, but the peso doesn't read the verdict until Thursday.

— See you tomorrow: even though it's a Mexican holiday (Día de la Independencia) with local markets closed, there'll be a view — the US is open. ☕