US-China cut tariffs on $60bn, and the peso stays sidelined near 18

Good morning!

There's a fresh trade truce on the table, and the peso couldn't care less.

The truce the peso ignored

My read starts with that disconnect. Washington and Beijing agreed Monday to cut tariffs on roughly $60bn of non-sensitive goods; US stocks still closed red (S&P −0.77% at 7,684), but ES futures are green (+0.12%) and global appetite plainly improved.

Risk On bounces from 43 to 55, back in CONSTRUCTIVE territory. The calm lives in equities (VIX at 15.85), less so in bonds, where MOVE jumped almost 6 points to 101.82.

With all that tailwind, USD/MXN opens near 17.9472, under 8 centavos from its 10-day ceiling at 18.0240. The optimism reached every desk except the peso's.

Why the currency is trading on its own

The easy move is to pin the weakness on the bond. This month it doesn't fit: the 20-day peso–10Y correlation has fallen to +0.17, essentially nil. The 10-year barely moved (−2bp, to 5.22%) and the dollar still gave up no ground.

What's dragging the pair is a broadly firm dollar (DXY at 101.36) and one-way momentum. Here's what bothers me: the currency trades nearly 8 ATR above its 20-day average. Chasing a move this stretched is where you get hurt, and I'm saying it while I stay long the dollar.

The rate cushion is thinner than it was: with Banxico on hold at 6.50% (it held last week and lifted its 2026 growth call to 1.5%) and the Fed lower, the gap has compressed to 2.62pp. The pulse also flags EM carry holding up despite dollar strength, with dealers warning of an unwind if the greenback turns.

The stance and tomorrow's judge

For the record: the pro-dollar call from September 22 validated today, with USD/MXN up +4.25% over five business days. I keep that bias while the peso sits pinned to resistance with no sign of fatigue.

Yesterday I drew the line at 17.60 and it never looked at it: the pair opens 35 centavos above, so the trigger didn't fire and it stays put.

The next test isn't today. US PCE prints tomorrow, Sept 30 at 6:30 CT, and it's the number that can recalibrate the Fed; today's calendar is clean.

As long as there's no close below 17.60, I stay with the dollar; the immediate judge is tomorrow's PCE.

— See you tomorrow for Wednesday's view.