PERU: Government Signs Bilateral Agreement With UK, USDPEN Near 20-month Lows

• With the Bund still under pressure today, the German supply initially weighted, followed by a Hawkish Schnabel, although nothing was too surprising from her, plus some short term long likely caught offside, the next key support is at the 131.00.
• BUT, Cash and Swap desks might also start looking at Yield levels, and if they could be on the toppish side around the 2.55%.

Nonetheless, looking further out, Today reference 131.50:

• 2.60% = 130.94.
• 2.65% = 130.42 (the 2025 high is at 2.653%).
• 2.70% = 129.89 (the 2024 high is at 2.706%).

Schnabel highlighted signals of increasing loan demand from the latest Bank Lending Survey (BLS) as evidence that ECB easing is being transmitted to the real economy.  Meanwhile, she did not make reference to the tightening of lending standards reported in the same survey.

• Even if rate cuts are feeding through into increased loan demand, tighter standards amongst banks will limit the pass through of that demand into the real economy. All else equal, this suggests a more restrictive policy stance than implied by loan demand alone.
• Relevant excerpts from Schnabel’s interview: “For corporate loans, 90% of banks said in the most recent round that the general level of interest rates has no impact on loan demand, while 8% said it has lifted credit demand”….”It’s even clearer when you look at mortgages. Almost half of banks said in the most recent round that the general level of interest rates is supporting loan demand.” 
• ECB Chief Economist Lane noted on Feb 5 that this tightening of standards was “driven by the fact that banks see higher risks to the economic outlook and have lower tolerance for taking on credit risk”. 

• RES 4: 110-25   High Dec 12
• RES 3: 110-19   76.4% retracement of the Dec 6  - Jan 13 bear leg    
• RES 2: 110-14   High Dec 14
• RES 1: 110-00   High Feb 7 and the bull trigger 
• PRICE:‌‌ 108-22+ @ 12:08 GMT Feb 19
• SUP 1: 108-04/00 Low Feb 12 / Low Jan 16   
• SUP 2: 107-06   Low Jan 13 and the bear trigger 
• SUP 3: 107-04   Low Apr 25 ‘24 and a key support 
• SUP 4: 106-11   2.00 proj of the Oct 1 - 14 - 16 price swing  

Treasury futures remain above the Feb 12 low, but have faded further off highs. Any reversal higher would expose key resistance and bull trigger at 110-00, the Feb 7 high. For bears, recent weakness resulted in a break of 108-20+, the Feb 4 low, signalling the end of the correction between Jan 13 - Feb 7. Moving average studies highlight a dominant downtrend. A resumption of weakness would open 108-00, Jan 16 low, and expose 107-06, Jan 13 low and bear trigger.