USD: BBDXY - USD Drifts Higher Into The FOMC
The BBDXY range overnight was 1212.64 - 1215.70, Asia is currently trading around 1214, -0.02%. US yields continue to extend higher as we approach the FOMC, and both risk and the USD have begun to take notice. The USD continues to see decent demand back toward the 1210-1211 area and it looks like the range 1210-1230 could be here for the moment, or at least until the FOMC. On the day look for resistance again back towards the 1216-1218 area where sellers should remerge initially, a break above here would imply a test of the pivot around 1221-1223. Support remains toward 1210 which needs to be worked through and then the more important 1205 area. Will the Fed provide Christmas cheer and point to further cuts or will a hawkish cut be the Grinch who stole it.
- US 10-year yield is approaching the pivotal 4.20% area so the FOMC will have a big say in whether this area breaks or caps yields going into the end of year. Which has direct implications for the fortunes of the USD.
- MNI: Fed Dots To Show 1-2 Rate Cuts Next Year - Ex-Officials. A fragile consensus for a December interest rate cut from the Federal Reserve is likely to produce a negotiated pause for early 2026, with the center of the FOMC projecting one to two more steps down toward neutral in 2026, former Fed officials told MNI.
- The BBDXY Average True Range for the last 10 Trading days: 317 Points
Fig 1: U.S. 10-Year Yield Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
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JPY: CNH/JPY - Bounces Off 21.40/45 Area, Looks Back Toward 21.70 Year Highs
The Friday night range was 21.4738 - 21.5519, Asia is currently trading around 21.5900. The pair has found some solid demand on the retracement back toward the 21.40/45 area. With risk taking a leg higher this morning as the market eyes a potential end to the US shutdown, Cross-Yen has reacted higher as you would expect. I thought the pullback in CNH/JPY would be a little deeper than that looking for a move back towards the 21.20-21.30 area. But With the 21.40 Area holding the focus should now return back to the 21.70/75 resistance area a break of which is needed to have a look toward the highs of 2024 seen around the 22.20 area.
Fig 1 : CNH/JPY Daily Chart
Source: MNI - Market News/Bloomberg Finance L.P
US TSYS: Weak Start to Trading for USTs; Potential Shutdown End Weighing Heavy
Bond are weak on the news that the government shutdown may be ending, with yields up across the curve at the opening of cash trading in Asia.
Bonds future are weak with TYZ5 down -07+ at 112-20+, unable to hold above the 50-day EMA and back below. The 100-day EMA is below at 112-12+. Volumes are low at this stage, potentially exacerbating the move.
Cash is seeing yields higher by 2.5 - 3.0bps across the curve in a fairly uniformed move, though like futures, volumes are low.
- The 2-Yr is up +2.7bps to 3.591%
- The 5-Yr is up +3bps to 3.715%
- The 10-Yr is up at 4.128%, +3bps higher
- The 30-Yr is up +2.6bps to 4.727%
JGBS: Modest Bear-Steepener After BOJ SOO & HLs On Ending US Shutdown
In Tokyo morning trade, JGB futures are weaker, -20 compared to settlement levels, after today’s BOJ SOO.
- MNI: BOJ board members largely agreed on the need to raise the policy interest rate eventually, but saw no urgency to act at the Oct 29-30 meeting, preferring to confirm sustained wage momentum and the firmness of underlying inflation, according to the summary of opinions released Monday.
- “The momentum of initial moves toward next year's annual spring labour-management wage negotiations will be an important factor for the Bank to consider in making policy decisions,” one member said at the meeting, which resulted in a pause to the 0.5% policy rate.
- Cash US tsys are ~3bps cheaper in today's Asia-Pac session after headlines have crossed that key US Senate Democrats will advance a GOP bill to end the government shutdown. This follows earlier headlines from US Republican Senate leader Thune that a deal was coming together. Risk appetite is firmer, albeit away from best levels.
- Cash JGBs have bear-steepened across benchmarks, with yields flat to 2bps higher. The benchmark 10-year yield is 1.4bps higher at 1.695% versus the cycle high of 1.705%. (see chart)
- Swap rates are 1-3bps higher.
Source: Bloomberg Finance LP
