USD/PEN threatens the 200-day as investors digest BCRP rate cut

At the end of the week, the USD/PEN increased to a high of 3.7248 and then settled at 3.7108, mainly driven by a broad-based PEN weakness, and the US Dollar is consolidating, seeing losses against its rivals. As the Banco Central de Reserva del Peru (BCRP) continues through its easing cycle, more upside for the pair may be on the horizon, as the Federal Reserve’s (Fed) tightening cycle is not done yet.

On Thursday, the BCRP cut rates 25 basis points to 7.5% as expected. Still, the bank emphasized entering an easing cycle doesn't automatically signal a series of consecutive interest rate reductions. However, Bloomberg shows that markets are expecting. However, Bloomberg consensus sees a nearly 2.25% easing until 2024 Q4.

On the US side, for next week’s Federal Reserve (Fed) decision, a pause is practically priced in, but investors will closely monitor Chai Powell’s tone and the policy statement to look for clues on forward guidance. In the meantime, the odds of one last hike in 2023 stand near 35% according to the CME FedWatch tool, and US yields on the 2,5 and 10-year bonds are holding firm at 5.03%, 4.40% and 4.30%.

USD/PEN Levels to watch 

 With the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) comfortably placed in positive territory on the daily chart, the USD/PEN buyers hold the upperhand. In addition, the pair is above the 20 and 100-day Simple Moving Averages (SMAs), but below the 200-day SMA, suggesting the bulls still have one more barrier to conquer to expand their bullish trajectory.

 Support levels: 3.7065, 3.690, 3.6890 (20-day SMA).

 Resistance levels: 3.7220 (200-day SMA), 3.7260, 3.7280.