Yields climb and the dollar retakes 18.00; the peso sheds 14 centavos

Good morning!

Yesterday I flipped to pro-peso the moment the pair broke below 18.00, with a clean line: hold the peso while it trades under that barrier, a close above 18.30 sends me back to the dollar. Eighteen hours later the peso handed back 14 centavos —from 17.9640 to 18.0995— and the greenback is parked above 18.00 again. My thesis cracked in a single overnight session.

Orderly yields, a firm dollar

This wasn't a panic bid. The US 10Y added 7bp to 5.34%, but it did so with bond vol falling: MOVE dropped 8.4 points to 105.20. Yesterday I flagged that gauge at 113.59 as the market's nerve; the nerve eased today and yields climbed anyway.

An orderly grind higher in rates is, if anything, more fuel for the dollar than a vol spike: it attracts flow rather than scaring it off. You see it everywhere: gold down 2.07%, bitcoin down 2.48%, the dollar gaining on nearly all of it.

The euro gives it away

Here's the tell if you run short peso hedges: EUR/MXN finished flat at down 0.06% while USD/MXN jumped 0.75%. The peso held against the euro and only lost ground to the dollar; the blow originates in US rates and radiates across the EM complex.

Stepping off the peso, into neutral

With the pair back above 18.00, my floor premise is gone. But the hard post I published, a close above 18.30, hasn't been touched, and we're sitting in no-man's-land between my two lines. So I don't leap to pro-dollar; I plant myself neutral inside the 18.00–18.30 band.

Context in my favor: my neutral call from September 30 matured today and was validated, with the pair moving just +0.28% over five sessions. A defined range has already paid off once this cycle.

The line that stings: yesterday I bought the break below 18.00 and the market handed it all back in one session. I read momentum where there was only a wick.

A defensive score that doesn't live in the VIX

Risk On collapses from 60 to 39 (DEFENSIVE), and it's worth seeing where that comes from. The VIX sits at 15.80, calm, yet the peso and bitcoin sub-indices are pinned to the floor. Today's stress lives in the currency and crypto, while the S&P holds near its record.

Until the pair closes outside 18.00–18.30, I stay neutral; the band picks the next call.

— See you tomorrow for Thursday's view.