COP – There is no major local driver today until Monday afternoon June CPI, so the COP went along with most of the Latam complex, enjoying some tailwind from the weakened USD and a strong crude. Spot briefly broke through our near-term watch level of 4,183 decisively midday, and we unwound the loss from yesterday’s price action. The next level to watch is 4,150. Overall, our trading desk saw mixed flows; outflows in Cash and inflows in NDF from Real Money names while inflows from Fast Money names.
NY Open – Countdown
Risk sentiment starts on a sour note this week, with broad G10FX struggling, US equity indices in the red as well. Front-end US yields are slightly lower, though US 10s around 4.07% remains a key driver for risk assets weakness. Overnight, CNH struggled as weaker June CPI prints signals ongoing weak domestic demand. AUD and NZD posted the largest losses intraday, while NOK outperformed, as another upside surprise in CPI increases hawkish risks from Norges Bank.
Conviction may be low as we start the week, given US CPI on Wednesday and Q2 earnings season kicking off from Friday. Fedspeak today include Mester and Daly at 11:00 EDT and Bostic at 12, who may reveal views about the latest NFP. BoE’s Bailey’s text of his speech releases at 11:00 EDT, but the UK may take more note of Chancellor Hunt’s annual address – pension reform talks are likely. The EM calendar is fairly light – ILS expects a base rate decision at 09:00 EDT. Our economist calls for no change though upside risks of a 25bps hike cannot be ruled out. ZAR is slightly outperforming, positive Eskom headlines helping local sentiment.
We expect COP to continue to trend down (appreciating) in the coming months, as we are not foreseeing changes to the current
regime of weak USD trend and carry seeking environment in FX markets. We also expect further COP outperformance ahead, given
that the BanRep will likely be the last Latam central bank to undertake rate cuts, and there is still room for the last leg of reduction in
political risk premium. We are expressing this view through a long COP position in our carry basket. Likewise, we continue to like a
short CLPCOP position.