Latin American exotics (BRL, MXN) bank upon macro numbers

BCB's rate hike 50bp estimates: The benchmark interest rate in Brazil was last recorded at 13.75%. Even though we expect that the BCB will continue hiking the Selic rate, very weak economic activity during the past weeks reduces the likelihood of a final 25bp September hike. For the July 29 meeting, however, the official communication of the central bank still downplays the risks for growth in contrast to a worrisome inflation outlook.

Given the timid move in 2016 inflation expectations and the recent upside surprises in inflation since the previous meeting, we believe the most likely outcome is a 50bp hike. Important data this week include July IPCA-15 and June unemployment rate.

We anticipate an above-consensus reading of 0.62% m/m on the inflation front (market: 0.48%), while for the latter we anticipate unemployment could marginally increase from 6.7% to 6.8% in line with market consensus.

The pair has formed a shooting star pattern at tops of 3.1965 levels with diverging signs of RSI curve to the rising prices which means the prevailing rallies may either take a halt or show downswings. We see shorting opportunities in this pair from current levels.  

Mexican inflation in focus: We think that Mexican peso may take a pause for sometime from its underperformance against the USD but on longer term the pair will continue to consolidate above the 15.50 for the next few weeks. Data wise, we will get the inflation print for the first half of July, monthly GDP proxy and Retail Sales for May and Unemployment Rate for June. We do not expect these events to be market movers as monetary policy remains tightly linked to US developments in the near future.