Wall Street hits a record and the peso still sheds 17 centavos to 17.46

Good morning!

Two stories that don't fit. The S&P 500 opens at a record 7765 (+1.49%), the VIX sinks to 14.29, and the peso still gives up 17 centavos in a single session, from 17.2965 to 17.4621. When Wall Street is celebrating and the EM currency is caving, the trouble isn't coming from abroad.

The blow is homegrown

That +0.96% is more than triple a normal day for the pair. What bothers me is that I can't pin it on the 10Y: the peso and US rates have been decoupled all month, at +0.22 correlation, so a good chunk of these centavos is pure positioning ahead of Banxico, and I read that with less conviction than a clean catalyst.

Risk On drops from 53 to 46, into DEFENSIVE. The tell is that equity fear isn't behind it. The VIX at 14.29 screams calm; what sinks the score is the peso's own subindex at 3 of 100 and a carry crushed to 37. The two thermometers point opposite ways.

Seventeen centavos, one centavo from the ceiling

The pair grazes its 10-day rolling resistance at 17.4710, just one centavo away. That ceiling jumped from yesterday's 17.292 because the move itself dragged the window higher; it's a brand-new level the breakout just built rather than one we've been tracking.

The stretch is extreme, 5.9 ATR above the 20-day mean, but it's useless as a reversion signal: over 21 years, betting that stretched moves snap back loses, at 47%. Stretched doesn't mean expensive.

Banxico takes the stand tomorrow

I left the thread open toward Banxico yesterday; the verdict is still ahead, tomorrow at 1pm Mexico City. With the rate at 6.50% and the spread over the Fed already compressed to 2.62pp, a cut thins the premium further and pulls away what little floor the peso has left.

For the record: the September 16 pro-dollar call matured today and it worked. The pair rose 1.81% over the next five sessions, moving the scoreboard to 33 of 49.

I stay with the dollar

I'm sticking with the greenback into the decision. Yesterday my invalidation was a close below 17.10; with the pair 36 centavos above that, the marker is meaningless, so I raise it to 17.29 (yesterday's ceiling), where a move back under would kill the breakout.

If you're running a short hedge, the clock that matters strikes 1pm tomorrow.

— See you tomorrow for Thursday's view.