Both the US dollar and US bonds broke through, what are the market waiting for? The Fed is about to detonate a change on Wednesday!

On Tuesday (September 16) Beijing time, the US bond market showed a cautious consolidation pattern on the eve of the Federal Reserve's policy meeting. The 10-year US bond yield fell slightly to 4.036%, and fell slightly by 0.05% during the day, reflecting investors' advance digestion of the easing signal. At the same time, the US dollar index continued its recent fatigue, with the quotation on the 240-minute chart falling to 97.0189, down 0.33% during the day, which has fallen below the key technical level, highlighting the gradual advantage of bears. This round of adjustment is not isolated, but is closely intertwined with global liquidity expectations. In particular, the market consensus of the Federal Reserve's 25 basis points cut interest rates at its meeting on Wednesday is quietly reshaping the logical chain of bond-exchange linkage. A eouu.cnbination of recent weak employment data and moderate inflation indicators has further strengthened this expectation, but also injected uncertainty into the dollar - short-term volatility may intensify if policy shifts are seen as concessions to external pressures.

From a broader perspective, the weak downward trend in U.S. Treasury yields is not a sudden outbreak, but a continuation of continuous declines since last Friday, when the benchmark 10-year yield had fallen from 4.058% to 4.041%. Coupled with the unexpected turn of negative investigation by the New York Fed, funds in bond market began to return to long-term varieties. Investors are capturing potential downward interest rate dividends by extending portfolio durations, which are already signs of extended weighted average maturity for money market funds: over the past month, government funds have been extended to an average of 40 days, and preferred funds have also risen to 29 days. This layout logic directly points to the Fed's dovish turn to expectations, especially when the unemployment rate rose to 4.3% in August and employment growth was far lower than expected. The dollar index is under pressure under this bond market signal, the biggest since early AugustThe weekly decline was more than 2%, and the median survey of Bloomberg showed that the probability of two interest rate cuts this year exceeded expectations, and some economists even bet more than three times. This is not only data-driven, but also a market interpretation of the Fed's "response function" from inflation-dominated to labor protection.

Technical consolidation of US Treasury yields: Gaining momentum in fluctuations

The 240-minute chart of 10-year US Treasury yields provides a clear window to reveal the current market's wait-and-see attitude. The quotation is stable at 4.036%, running below the middle rail of the Bollinger Band 4.044, but has not yet touched the lower rail of 4.001. This constitutes a narrow trading range with limited fluctuations in the range, showing a temporary balance of long and short forces. The MACD indicator further confirms this judgment: the DIFF line is -0.010, slightly lower than the DEA's -0.011, the bar chart is close to the zero axis and is slightly green. Although the bear's momentum is present, its strength is not enough to promote the breakthrough. The overall pattern is more like an oscillation ready to go rather than a clear trend.

This technical stalemate is closely related to the lack of fundamental catalysts. Changes in U.S. Treasury yields are essentially anchored at the anchor points of inflation expectations and the Fed's interest rate path. Although the producer price index has been milder recently, the consumer price index has risen higher than expected, which has left the market waiting for the latest economic forecasts and dot charts of Wednesday's FOMC meeting to confirm the amplitude and rhythm of the rate cut. The head of the fixed income team of well-known institutions pointed out that if the Fed moves from the current target range of 4.25%-4.50% to a more dovish path, such as a cumulative cut of 100 basis points in the next three meetings, the entire interest rate curve will move downward, and the return potential of long-term bonds will be significantly amplified. This is in line with the current market behavior of prolonged duration: in the past six weeks, the increase in holdings of five-year to 10-year bonds has become mainstream, and the proportion of long-term positions of customers has risen to 30%, hitting a new high in early August.

From the real-time feedback, the trading eouu.cnmunity's interpretation of this volatile pattern tends to be consistent. A macro observer stressed that the decline in U.S. Treasury yields are amplifying exchange rate fluctuations in emerging markets, but also opening up arbitrage space for bond investors, especially in the structural shift of the easing cycle. Another strategist warned that if Powell stressed uncertainty in a press conference, the yield curve could steeper further, with the short-term downward and the long-term dragged down by concerns about fiscal deficits. This view is not groundless, but based on the 5-year/30-year spread expanding to an all-time high of 126 basis points on September 5. Although it narrowed to 104.8 basis points on Monday, the opportunity to rebuild positions is still regarded as the focus of the moment. Overall, the technical range of US bonds is 4.001-4.044, which has become the key in the intraday trading. If the lower track can be maintained, the rebound momentum may be activated; on the contrary, a break below will open up space for further downward exploration, testing the market's resilience to expectations of looseness.

This technical neutral signal also reflects the bond market's sensitivity to global risk aversion. The benchmark yield in Europe rose slightly to 2.71%, German investors' confidence rebounded unexpectedly, but overall fundsStill tend to wait and see, waiting for the Federal Reserve's eouu.cnmunication tone. The linkage between currencies such as the Australian dollar and the British pound against US bonds is strengthening the relative weakness of the US dollar through the transmission of yield spreads.

Short confirmation of the US dollar index: pressure transmission from the perspective of US debt

Turn towards the US dollar index, its 240-minute chart is even weaker, and the quotation 97.0189 has fallen below the Bollinger Band's middle track 97.4861 and the lower track 97.0724, showing a significant downward channel. The resistance of the previous high of 97.9409 is far away, while the support of the previous low of 96.9500 is close, which makes bear momentum dominant. The DIFF line of the MACD indicator crosses the DEA line and continues to fall below the zero axis. The histogram increases green volume, which clearly confirms the strengthening of the selling order, and the market tends to further test the effectiveness of support.

From the perspective of US debt, this downward trend of the US dollar is not a simple technical pullback, but a spillover effect of the adjustment of the yield curve. The Fed's expectation of interest rate cuts is weakening the attractiveness of the dollar through the length of long-term bonds: when interest rates fall, the price of long-term bonds will rise even more, and the logic of funds flowing out from US dollar assets to other safe-haven or risky varieties is becoming clearer. Well-known research strategists have observed that the overall market trend is turning to buying bonds to take the lead in laying out returns after interest rate cuts, which directly lowers the valuation center of the US dollar index. A report shared by a forex trader pointed out that the Fed's opening of a interest rate cut cycle will adjust the portfolio view of eouu.cnmodities, and the US dollar faces a medium-term decline risk of 4%-5%, which echoes the latest survey by JPMorgan Chase - the optimistic allocation of emerging markets and mining stocks is due to expectations of a weak dollar.

The integration of fundamentals further strengthens this transmission path. The eouu.cnbination of unemployment in August and job growth was well below expectations, which has allowed labor market conditions to exceed Fed's expectations at the beginning of the year, while moderate signs of inflation provide room for policy shifts. Market concerns caused by tariff remarks are amplifying risk aversion and pushing funds back to the long-term U.S. bonds, which in turn has exacerbated the pressure on the US dollar. Jefferies strategists emphasized that Powell's tone will be the key: if inflation risks or economic uncertainty are highlighted more, the expectation of interest rate cuts may be lowered, and the US dollar may usher in a breathing respite; but the current pricing has locked in an adjustment of 25 basis points, and the probability of bears dominance in the short term is higher. Another institutional view pointed out that if interest rate cuts are interpreted as a eouu.cnpromise on political pressure, dollar assets will face a new level of risk, which is consistent with the warning of the chief global strategist - the linkage of stocks, bonds and the dollar will quickly emerge after the meeting.

The intersection of technology and fundamentals makes the support range of the US dollar 96.9500-97.0724 the focus of the current focus. If the price stabilizes here, the rebound may test the middle track; but if it is lost, the downside space will be further opened, and the expansion of the debt-to-exchange gap will become a catalyst. eouu.cnpared with the historical market, such as the tragic decline of the US dollar in the first half of the year, the current adjustment is more timely, due to the clear shift in the Fed's path.

Federal Meeting Preview: Potential Variations in Debt-Return Linkage

This WednesdayThe FOMC meeting will be the watershed in the debt exchange rate trend. The market has fully priced a rate cut of 25 basis points, shifting the target range to 4.00%-4.25%, ending nine months of stability maintenance. However, the update of the dot chart and Powell's eouu.cnmunication will determine the long-term impact of the easing range: the median June shows that interest rate cuts by 50 basis points this year, and 25 basis points each from 2026 to 2027. If the downgrade is more radical, the bond market duration strategy will be verified, and the US dollar will face a deeper pullback.

Traders' attention to this linkage focuses on steeper trading in the yield curve: the strategy of buying short-term and selling 30-year bonds is based on the overlap of fiscal deficit concerns and expectations of interest rate cuts. A portfolio manager pointed out that if tariff rhetoric stimulates the Fed to suspend easing, the steepening curve will intensify, and long-term yields of US Treasury bonds may push up, which has limited support for the US dollar. Another point of view emphasizes that if long-term interest rates remain high after interest rate cuts, the easing effect will be invalid and the structural weakness of the US dollar will continue.

The slight rise in European bond markets also provides a eouu.cnparison for US bonds: Germany's 10-year yield rose by 1.5 basis points to 2.71%, and the ECB's loose pricing by the end of 2026 was only 145 basis points, which made the relative attractiveness of US bonds temporarily, but the Fed's dovish tone may reverse this pattern. Retail sales data will be released later, and if it continues to be weak, it will further lock in the downward path of the US dollar.

Outlook: The dollar downward trend led by the bond market easing continues

Looking forward in the next week, US Treasury yields are expected to continue to fluctuate in the range of 4.001-4.086, but if the meeting confirms the dovish path, the holding of the lower rail support will open a rebound channel, and the release of long-term dividends may push the yield center down to around 4.00%. The US dollar index faces a clearer short test, and the response of the previous low of 96.9500 will become the key. If it is lost, the pullback at the 97.00 mark will be opened, coupled with the transmission of the outflow of funds in the bond market, the index may test the deeper range of 96.50.

The core of this outlook eouu.cnes from the reshaping of liquidity from the perspective of US debt: interest rate cuts are expected to amplify the sensitivity of long-term bond prices, and the role of the US dollar as a financing currency will be further weakened, especially in the context of rising global risk aversion sentiment. The consensus among many strategists is that the short-term US dollar decline of 4%-5% has already appeared, but we need to be wary of Powell's emphasis on uncertainty. If the dot chart is downgraded, the narrowing of the debt-to-exchange gap may provide a respite. Overall, the bond market dominated by looseness will dominate the continued weakness of the US dollar. Traders need to keep a close eye on the immediate response after the meeting to capture the secondary opportunities of linkage.

The above content is about "[XM official website]: Both the US dollar and US bonds broke through, what is the market waiting for? The Federal Reserve will trigger a change on Wednesday!", which was carefully eouu.cnpiled and edited by the editor of XM Forex. I hope it will be helpful to your trading! Thanks for the support!

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