Can a more hawkish Fed spur an upside break in Treasury yields?
The bond market has been rather unimaginative since mid-July trading and as the range since then continues to trap price action, it isn't giving traders much to work with in terms of identifying a clear trend in the market right now.
There are so many key variables at play such as COVID-19 risks, global supply chain problems weighing on growth prospects, inflation, China worries, and not least Fed taper expectations as we look towards the FOMC meeting later today.
The market will be looking for any taper hints by the Fed at today's meeting and if the Fed delivers, the dollar and yields could find a catalyst for a more meaningful break higher - especially if 10-year yields crack open resistance near 1.38%.
The technical play in itself could lend a tailwind for yen pairs to surge higher as well.
That said, a more disappointing message by the Fed has the potential to put a drag on yields and keep this lackluster range play out for much longer.
In such an event, expect the magnitude of the move in yields to be more noteworthy as some yen pairs are keeping close to the brink. The 109.00 level in USD/JPY will be one to watch in this regard as well as the vulnerabilities in CAD/JPY.