LATAM: Swaps Curves Shift Higher

• RES 4: 155.89 High Feb 3  
• RES 3: 154.70 50-day EMA 
• RES 2: 153.72 Low Jan 27   
• RES 1: 152.89 High Jan 6       
• PRICE: 151.98 @ 20:01 GMT Feb 10
• SUP 1: 150.93 Low Feb 07
• SUP 2: 149.69 Low Dec 9 
• SUP 3: 148.65 Low Dec 3 ‘24 and a key support 
• SUP 4: 148.01 Low Oct 9 ‘24     

A bearish theme in USDJPY remains intact and last week’s move down reinforces current conditions. 151.06, 76.4% of the Dec 3 - Jan 10 bull leg, has been pierced. A clear break of it would open 149.69, the Dec 9 low. Firm resistance is seen at 154.70, the 50-day EMA. Note that the pair has entered oversold territory. A recovery would be considered corrective and would allow the oversold condition to unwind.

• US Data/Speaker Calendar (prior, estimate)
• 11-Feb 0600 NFIB Small Business Optimism
• 11-Feb 0850 Cleveland Fed Hammack economic outlook (text, Q&A)
• 11-Feb 1000 Fed Chair Powell Senate Banking testimony (text, Q&A)
• 11-Feb 1130 US Tsy $85B 42D CMB bill auction
• 11-Feb 1300 US Tsy $58B 3Y Note auction (91282CMN8)
• 11-Feb 1530 NY Fed Williams keynote remarks/moderated Q&A
• 11-Feb 1530 Fed Gov Bowman on bank regulation (text, no Q&A)

Deutsche Bank analysts estiamte that "reciprocal" tariffs by the Trump administration on foreiign trading partners, in addition to the 25% announced tariff on steel and aluminum imports, could "if sustained" increase core PCE by 30-40 basis points in 2025 vs their baseline. This would mean inflation of closer to 3% vs Deutsche's 2.5% baseline core PCE forecast for the year - that's before accounting for 25% tariffs on Canada and Mexico which would push 2025 core PCE to 3.5%.

• That's "depending on the ultimate passthrough to consumer prices. If the delayed Canada and Mexico tariffs were to ultimately go into effect as well, inflation in 2025 could be above 3.5%,
  though the tariffs would have limited impact beyond this year."
• The arithmetic is as follows: steel and aluminum imports were around 0.37% of the size of core PCE in 2023, so a 25% tariff would contribute about 9bp to the price level if fully passed through, though likely lower (50-75% passthrough) for an impact of 5-7bp mainly concentrated in core goods.
• If the US raises its weighted average tariff rate from 1.5% (2022) to 4.8% (Deutsche's estimate of the rate if the US "reciprocated" average tariff rates other countries have on the US), that 3.3 percentage point increase would lead to a roughly 50bps increase in the core PCE level (imports are 16.4% of core PCE; so 100% passthrough of the 3.3pp increase = roughly 50bps increase, 50% 25bp increase, 75% 40bps. Deutsche assumes 50% passthrough.)
• Combined that's roughly 5-7bp for the steel and aluminum and 25bp for the reciprocal tariff impact for 30-40bps.
• Deutsche think thinks the Fed would "prefer to 'look through' the price level impact by keeping rates steady", but they may not be able to stand still if inflation expectations rise and/or the labor market becomes a source of inflationary pressure.