Long USDCLP stop-loss
Trade: Long USDCLP – Entry: 951.5, Target: 992, Stop 930
Trade Review: the CLP has rallied meaningfully from the low USDCLP1000s. The move cleaned out stretched long USD positioning from offshore in the NDF market and eventually added long CLP positions, which had led us to prefer going long USDCLP. However, the recent historically sharp divergence of higher copper and lower oil prices has provided sufficient support to drive the pair even lower, to below 930, and through our stop-loss. It is important to note a few key points: first, as far is BCCh policy is concerned, since we opened the trade on 19 February, pricing in CAM has fallen from pricing in one to two hikes to an on-hold in implied pricing, a dovish development on the margin, supporting our initial view that much of the adjustment was embedded into local rates at the time. Second, we noted price action in the CLP at the start of the trade was more muted due to positive developments off the back of skewed positioning. The Wednesday session continued to see support for this rationale, as the 1.6% rally in the CLP against the USD remained closer to historical norms at +2.2 standard deviations since 2009, despite the historically outsized divergence in Copper/Oil performance of 8.5% (or +3.8 standard deviations) over the same time frame. The recent terms of trade shock have been the key reason for the run into our 930 stop-loss, running counter to our expectations of a reversion in this ratio after hitting historically stretched levels. A continuation of this meaningful shift would be more representative of a larger sustained macro-regime shift, which is plausible given the singular current global trade policy and geo-political developments. As such we remain vigilant to the formation of new ranges.