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Oil/Copper Moves Spark Andean FX Divergence

LATIN AMERICA
  • A positive open for the Chilean peso was quickly reversed and negative sentiment has been prevailing on Thursday. The main driver for the move has been the sharp move lower for copper futures, declining a little over 3% today amid signs of weak near-term demand in China.
    • With the slightly firmer greenback acting as an additional tailwind, USDCLP (+1.25%) has firmly reasserted itself above the 800 mark.
    • Overall, the Chilean peso has been trading on the back foot this week with USDCLP breaching initial resistance at the 20-day exponential moving average. Today’s significant move higher and sustained break of this level points to a move to key resistance at the 50-day EMA at 824.34.
  • Conversely, the Colombian peso is the region’s best performer, rising around 1% against the USD. COP is benefitting from some renewed optimism in oil markets, with both WTI and Brent crude futures rising 1.5% on Thursday.
    • As noted earlier, Citi stated that 5000 is going to be a floor for COP and that they expect 4500-4900 are the expected parameters for short-term trade.

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