The market is "betraying" the Fed! U.S. debt revolts, gold-dollar secret war escalates

On Monday (October 27), U.S. bond yields, U.S. bonds and the spot gold market showed obvious signs of rotation. The 10-year U.S. Treasury yield index is back above the 4% mark, reflecting a subtle adjustment in market expectations for a rate cut by the Federal Reserve this week. Meanwhile, the U.S. dollar index hovered around 98.7860, down slightly 0.14% on the day, showing a brief outflow of safe-haven funds. Spot gold fell under pressure, with intraday fluctuations intensifying. Overall, as the Federal Reserve policy meeting approaches, the delay in the release of labor market data coupled with the repercussions of trade frictions has promoted the short-term differentiation between the bond market and the foreign exchange market. Analysts from well-known institutions pointed out that this pattern stems from inflation data being milder than expected, but potential geopolitical risks and political noise are still stirring up capital flows on the outside. It is necessary to pay close attention to the Fed's statements this week, which will directly amplify the bond market transmission effect.

Bond market rebounds: The Fed's interest rate cut path may face resistance

The focus of the bond market this week will undoubtedly fall on the Federal Reserve's decision-making. The market is widely expected that the Federal Reserve will implement a 0.25 percentage point interest rate cut at Wednesday's meeting, adjusting the policy interest rate range to 3.75%-4.00%. This is the second such move this year, aiming to buffer signs of further cooling in the labor market. Rising unemployment insurance application data suggests continued weakness on the demand side. Although the government shutdown has delayed the release of most official statistics (such as the unemployment rate of 4.3% in August), this has not weakened the consensus on easing. More importantly, the "additional adjustments" statement embedded in the statement of last month's meeting was specifically emphasized by Michelle Bowman, Vice Chairman of the Federal Reserve, as a way to pave the way for future interest rate cuts. Analysts believe that the Fed will not easily modify this measure.to avoid releasing dovish signals prematurely.

However, the intraday recovery in bond market yields exposed internal divisions. The 10-year U.S. Treasury yield rebounded from the mid-range position of 3.989 to 4.025. The upper Bollinger Band of 4.044 is close at hand, and the lower track of 3.934 provides short-term support. The MACD indicator shows that DIFF is 0.010, DEA is 0.003, and the columnar line has turned slightly positive to around -0.007, suggesting that the short-term momentum has changed from downward to neutral to bullish. This echoes the headlines overnight: The trade agreement finalized by Trump and Southeast Asian countries (such as Malaysia, Cambodia, Thailand and Vietnam) involves tariff exemptions on some products in exchange for U.S. www.xmhouses.commodity purchase www.xmhouses.commitments. Although it has alleviated some trade uncertainties, it has also triggered a re-examination of the path of inflation. The annual rate of consumer prices in September only rose to 3%, lower than expected. This should have strengthened expectations for an interest rate cut, but it changed due to the fallout from the tariff remarks. Economists from well-known institutions have observed that cautious voices about further easing are gradually rising within the Federal Reserve. Many policymakers are worried that inflation will remain above the 2% target for a long time. New director Stephen Millan may once again cast his dissent this week and support a larger 0.50% interest rate cut.

From a fundamental perspective, the upward pressure on the bond market also stems from external events. In the low oil price environment, Washington has intensified its sanctions on the situation between Russia and Ukraine. Although its actions against Moscow's two major energy producers did not directly impact the bond market, it strengthened the narrative of global oversupply and further depressed inflation premium expectations. The election victory of Argentine President Javier Milley also injected a glimmer of reform optimism into emerging markets, but its direct impact on U.S. debt was limited. From a technical perspective, the slopes of the 2-year and 10-year yield curves narrowed from 52.2 basis points to the 49.9-53.1 range, while the 5-year to 30-year yield curves fluctuated in the 97.7-99.1 range. The overall curve is showing signs of flattening, which often indicates the critical point of policy shift. Pay attention to the durable goods orders data later on Monday (expected to be +0.5% month-on-month) and the Dallas Fed Texas Manufacturing Index (previous value -8.7). If it exceeds expectations, it may further push up the yield curve.

Intraday trading in the bond market is active, with TYZ25 contract volume reaching 279k, higher than the recent average. There are no block transactions yet, but the US$26 billion 6-month Treasury bond auction and the US$69 billion 2-year Treasury bond tender at 11:30 will test the market's ability to digest short-term yields. The auction of US$86 billion of 13-cycle Treasury bonds and US$70 billion of 5-year Treasury bonds at 13:00 may amplify long-term fluctuations. Generally speaking, the rise in U.S. bond yields is not isolated, but a prelude to adjustments in the Fed's www.xmhouses.communication strategy. Institutions are expected to discuss the timing of ending quantitative tightening (QT) at this week's meeting, or to start it within this month. This will provide a downward buffer for yields, but short-term political pressure (such as the Trump camp's public call for low interest rates) may maintain upward momentum. The U.S. dollar is under pressure: capital spillovers driven by bond market transmission

The U.S. dollar index fell slightly during the day, which was in sharp contrast to the rebound in bond market yields.This is a typical manifestation of the debt-exchange linkage mechanism. On the 240-minute chart, the U.S. dollar index is quoted at 98.7860, the middle rail of the Bollinger Bands at 98.9408 provides resistance, the upper rail at 99.1040 has not yet been touched, and the lower rail at 98.7777 has become immediate support. The MACD indicator DIFF is 0.0208, DEA is 0.0466, and the columnar line -0.0517 shows that although the downward momentum has slowed down, it has not yet been reversed, suggesting that the index is on the verge of rebounding from the lower track. Expectations of a rate cut by the Federal Reserve should have supported the dollar's relative strength, but delays in labor market data and optimism about a trade deal have prompted a spillover from dollar assets into equities and www.xmhouses.commodities.

From the perspective of the bond market, the 0.52% increase in the 10-year yield directly eroded the interest rate attractiveness of the US dollar. The flattening of the yield curve tends to weaken the dollar's safe-haven premium, especially in the context of benign inflation data - September's CPI annual rate reading of 3% put concerns about price pressures caused by tariff remarks on the back burner, but also exposed divisions within the Fed: some policymakers have called for a December rate cut to be data-dependent, while leadership prefers to keep options open and avoid locking in the path prematurely. Economists from well-known institutions such as Deutsche Bank pointed out that Powell will not pre-commit actions at the end of the year at this week's press conference, which will amplify short-term uncertainty about the US dollar. External factors have further aggravated this transmission: Although Trump's tariff remarks did not elaborate on the details, they have ignited the market's concerns about the global trade pattern. Superimposed on the partial benefits of the Southeast Asian trade agreement, the US dollar index is facing a long-short tug of war.

Technically, the U.S. dollar index has fallen from last week’s high of 99.10, and the RSI (14) is hovering around 45, showing that oversold signs are gradually disappearing. However, if it falls below the lower track of 98.77, it may test the monthly low support of 98.50. In terms of trading volume, the overnight rebound in equity markets (driven by trade optimism) echoed the ebb of safe assets. The dollar's intraday decline, although limited, reflected the diversion of funds to emerging markets (such as Argentina's reform expectations). The energy sanctions imposed by the Russia-Ukraine situation have also indirectly reduced the demand for www.xmhouses.commodity currency hedging of the US dollar. This bond market-led dollar fluctuation is similar to the curve inversion period in 2019, but the current easing path is clearer. It is expected that weak durable goods data this week will intensify the downward pressure on the dollar.

It is worth mentioning that the Federal Reserve’s www.xmhouses.communication reshaping is also quietly affecting the path of the dollar. Institutional analysts expect that this week's meeting will debate guidance on the interest rate path, or introduce a more flexible "data-dependent" framework, which may curb the dollar's rebound in the short term. www.xmhouses.combined with the 2-year yield of 3.501% (intraday range 3.499%-3.512%), the rise in the short-term bond market has begun to erode the financing cost advantage of the US dollar, driving the relative strength of major currencies such as the euro and the yen. Gold Hedging: The Transmission Effect of Bond Market Fluctuations

The intraday decline of spot gold is highly synchronized with the recovery of the bond market, which highlights the transmission role of the bond market as the center of the hedging chain. The 240-minute chart quoted 4044.33, down 1.67%, the middle track of Bollinger Bands 4094.32 has become the upper pressure, the upper track 4154.05 is far away, and the lower track 4034.56 holds the key line of defense. The MACD indicator DIFF -30.67, DEA -27.73, and the bar line -5.85 continue to decline. Although the momentum has slowed down, there is no sign of a golden cross, suggesting that gold is in the downward track testing stage of adjustment. Expectations of an interest rate cut by the Federal Reserve should have boosted gold's zero-coupon asset attributes, but the rebound in bond yields quickly drew away some safe-haven funds, and the optimistic noise of the trade agreement further suppressed the upside of gold prices.

Driven by fundamentals, the trend of gold is deeply affected by the fluctuations of the bond market. The 10-year yield returned to above 4%, directly raising the opportunity cost of holding gold. Although the market consensus on the Fed's "additional adjustments" is solid, internal dissent (such as the hawkish stance of the Milan governor) and political pressure (such as external calls for low interest rates) have created uncertainty. Mild September inflation data (annual rate of 3%) mitigated the immediate impact of tariff remarks, but also caused investors to question the effectiveness of gold as an inflation hedge - www.xmhouses.commentators from well-known institutions pointed out that gold's safe-haven narrative was "over-interpreted" in a low-inflation environment, and its sensitivity to price fluctuations was much lower than expected. This is consistent with the overnight rebound in equity: Amid trade optimism, safe assets ebb, and gold is under pressure of 1.67% during the day.

Technically, gold has retreated from this month’s high of 4160, Fibonacci 38.2% retracement level of 4050 is approaching, and Stoch (14,3,3) is oversold below 20, indicating the potential for a short-term rebound. However, the transmission effect of the bond market cannot be ignored: the flattening of the yield curve tends to amplify the volatility of gold, especially when short-term bonds (such as 2-year 3.501%) rise, funds are more inclined to rotate to yield assets. Although the energy sanctions imposed by the Russia-Ukraine situation have intensified global uncertainty, the oversupply narrative of low oil prices has weakened gold's geo-premium. The reform signal from Argentina's election also dispersed the demand for safe havens in emerging markets.

Gold’s bond market dependence is particularly prominent in the current environment. If the lower Bollinger Band falls at 4034.56, it may accelerate to a test of the 4000 integer mark; conversely, if the Federal Reserve releases a clearer easing signal on Wednesday, the fall in yields will quickly be transmitted to the bullish momentum of gold. Overnight trading showed that gold futures volume was moderate and institutional positioning was bearish, but this week's auction sequence (especially the 5-year Treasury bond) may trigger bond-gold fluctuations. Outlook: The rotation of bonds and gold has intensified, and short-term differences may dominate

Looking to the next 2-3 days, U.S. bond yields are expected to maintain a narrow range of 4.00%-4.05% before and after the Fed meeting. If Powell's press conference emphasizes data dependence, yields may further rise to the upper track of 4.04, and the trend of curve flattening will continue. The U.S. dollar index is driven by the bond market and is expected to bottom out in the range of 98.50-99.10. If the durable goods data is weak, the index may drop to the lower track near 98.77, and the short-term momentum will be weak. Spot gold's bond market hedging transmission will continue to dominate, and the quotation may be around 4030-40Fluctuating between 60 and 4034.56, holding the lower track of 4034.56 is key. If the steepness of the yield curve narrows unexpectedly, the gold price will have room to rebound. In the overall rotation, the interweaving of trade noise and policy signals will amplify market differences, but the anchoring of the easing path may limit extreme fluctuations.

The above content is all about "[XM Foreign Exchange Market www.xmhouses.commentary]: The market is "betraying" the Federal Reserve! U.S. debt is turning back, and the secret war between gold and the US dollar is escalating." It is carefully www.xmhouses.compiled and edited by the editor of XM Foreign Exchange. I hope it will be helpful to your trading! Thanks for the support!

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