BNM: Bond Wrap.

The US dollar is slightly weaker today ahead of the FOMC decision later with the BBDXY index down 0.1% with most G10 currencies stronger against the greenback. The yen is outperforming and making up some of Tuesday’s losses as the Fed is widely expected to cut rates, while the BoJ’s next move is likely to be a hike, even if it isn’t this Friday. 

• USDJPY is down 0.7% to 141.37 with key support at 139.58. It reached a low of 141.23 earlier.
• After reaching a high of 0.6773 earlier, AUDUSD has given up those gains to be down 0.1% on the day at 0.6751, as softer commodity prices, especially iron ore, and mixed regional equities weigh. AUDJPY is down 0.8% to 95.42, close to the intraday low.
• NZDUSD is up 0.2% to 0.6196 but off the intraday high of 0.6207. AUDNZD is 0.2% lower at 1.0898 where 1.09 seems to be providing some support.
• European currencies are little changed with EURUSD at 1.1122 and GBPUSD 1.3159 but USDCHF is down 0.2% to 0.8453.
• Bloomberg consensus is forecasting a 25bp FOMC cut (see MNI Fed analyst outlook and MNI Fed Preview). There is significant speculation that the first move will be 50bp with the market pricing in 1.5 25bp moves.
• There are also US August housing starts/permits, final euro area August CPI and UK August CPI/PPI. The ECB’s McCaul and Buch speak.

• RES 4: 107.474 1.382 retracement proj of the Aug 5 - Sep 3 bear leg
• RES 3: 107.373 1.236 retracement proj of the Aug 5 - Sep 3 bear leg
• RES 2: 107.210 High Aug 5 and the bull trigger
• RES 1: 107.155 High Sep 11    
• PRICE: 106.920 @ 05:24 BST Sep 18
• SUP 1: 106.836/765 20-day EMA / Low Sep 6        
• SUP 2: 106.675 Low Sep 4  
• SUP 3: 106.520 Low Sep 3 and the bear trigger 
• SUP 4: 105.975 High Jun 14 (cont) 

A bull cycle in Schatz futures remains intact despite the latest pullback. The move higher last week resulted in a break of 107.047, 76.4% of the Aug 5 - Sep 3 bear leg. A resumption of gains would pave the way for a climb towards key resistance and the bull trigger at 107.210, the Aug 5 high. Clearance of this resistance would confirm a resumption of the medium-term uptrend. Initial support lies at 106.836, the 20-day EMA.

JGB futures are stronger, +5 compared to the settlement levels.

• Outside of the previously outlined trade balance and machine orders data, there hasn't been much by way of domestic drivers to flag.
• The market’s attention is on Friday’s BoJ MPM decision, where the board is expected to keep the policy rate unchanged at 0.25%. The upside risk to prices, driven by high import costs—previously a key concern for policymakers in July— has eased due to the yen’s recent appreciation.
• Before that, the FOMC will announce its policy decision later today, with markets leaning more toward a 50bp rate cut than a 25bp move from the Fed.
• Cash US tsys are ~1bp richer in today’s Asia-Pac session after yesterday’s modest sell-off. Yesterday’s session reflected position squaring ahead of today’s FOMC policy announcement.
• The cash JGB curve has twist-flattened, pivoting at the 2-year, with yield swings bounded by +/- 1.5bps. The benchmark 10-year yield is 0.3bp lower at 0.826% versus the recent low of 0.74%.
• Swap rates are 1-2bps lower out to the 30-year and 4bps higher beyond. Swap spreads are mixed.
• Tomorrow, the local calendar will see Tokyo Condominiums for Sale data alongside an Enhanced Liquidity Auction covering OTR 5-15.5-year JGBs.