The dollar gained $39 or 1% against the Colombian peso today after bullish economic data from the US. Durable Goods MoM was released showing a rise of 2.6% compared to forecasts of 2.5%.

Most of that increase in activity would have been priced, but the unexpected extra was enough to spur the dollar higher against most currencies. We are expecting GDP Growth from the US tomorrow and PCE data on Friday.

We’re expecting a decline in GDP growth from 3.5% QoQ last month to 2.5% for tomorrow, that might not look good. However, GDP growth in Colombia is stagnant and the last data showed a decline of 0.2% QoQ.

So even a lower number than the previous reading would give the dollar momentum against the peso. Considering interest rates, BanRep has its monetary policy meeting on April 30, and most analysts forecast another cut of 50 basis points.

The central bank has cut interest rates at each of the last 3 meetings. Some forecasts are calling for a cut of 75 basis points to 11.50% from 12.25%. Inflation in Colombia has been on the decline since April 2023, so it would make sense to keep easing monetary policy.

The Fed on the other hand, seems all but settled on not cutting rates at its next meeting on March 8. The Fed policy seems likely to be on hold for the coming months.  The scenario favors the US dollar, as the Colombian peso will suffer from a tightening interest rate differential.

Technical View

The daily chart for USD/COP shows the market breaking out of a consolidation area (yellow area).  The breakout would also complete the Ichimoku system’s bullish signal, with the market also above the cloud.

The RSI shows rising momentum ad still far from any over bought levels. What is clearly visible is the resistance zone (red line) at $3,983, which the market set in January and February attempting to break above the Ichimoku cloud.

The next resistance past the red line is at $3,998 (orange line), when the market attempted another bullish rally. To the downside the closest support would be at $3,902 (grey line), which I would see as an area to go long of this pair.