Asian markets could trade choppy following an indecisive trade on Wall Street, where US equities initially spiked higher following the cooler-than-expected US Consumer Price data. However, most gains had reversed throughout the session on potential profit-taking ahead of the Fed decision later today. Technical trades ahead of Friday’s futures and options expiry might also be adding pressure to short-term price action.
With the FOMC decision being the key risk event today, traders will watch the US yield curve and the USD going into the event. After yesterday’s US CPI print, the front end of the US yield curve shifted around 15-basis points lower, and rates for December next year dropped 20 bps. That shows that participants are starting to position for a rate cut next year. On the back of the US yield curve dropping, the Yen was a clear outperformer against the USD, so it is worth using the FX pair as a core reference. On the hawkish note, money markets are still pricing for terminal rates of 4.75-5.00%, while the huge rally into Fed made the risk-reward for further upside less favourable ahead of such a key risk event. Still, the balance of the cross-asset shows that participants favour a slightly more dovish statement.
