OnTheRadar: Falling Dlr Raising Eyebrows; Euro Vaults $1.1900

--DJIA Posts New Record Intraday High, Record High Close

By Vicki Schmelzer

     NEW YORK (MNI)   - Wednesday's continuation of the sell-dollar trend was

raising eyebrows among market players and had budding bulls, who saw the

greenback slide as overdone, wondering if they had re-entered long positions too

soon. 

     Earlier in the day, the dollar fell to $1.1910 versus the euro, a new

30-month low, and $1.3251 against sterling, the lowest level since mid September

2016. 

     It could be argued that greenback weakness against these particular pairs

is not a surprise given shifting views towards sooner-than-expected monetary

policy normalization and or tightening from the European Central Bank, which

next meets in September and the Bank of England, which meets Thursday. 

     Add to the mix, greater uncertainty about the Federal Reserve's next move

and it is no surprise to persistent euro and cable strength, traders said. 

     Earlier Wednesday, MNI Fedwatcher Karen Mracek interviewed St. Louis Fed

President James Bullard, who said "given the inflation outlook, which has

deteriorated in 2017, I would not support further moves in the near-term."

     "It's possible the data will turn around, but we'll have to see. I think

for now we should remain on pause," Bullard said. See MNI Main Wire story at

9:15 a.m. ET. 

     Bullard's comments served to weigh further on the dollar, although the

greenback managed to claw back gains into the close once it was clear that U.S.

yields were stabilizing.  

     In fixed income markets Tuesday, 10-year U.S. Treasury yields were last

near 2.269%, after trading in a 2.243% to 2.280% range. As background, 10-year

yields traded near 2.32% ahead of last month's Fed announcement. 

     The July 21 and July 24 low yield of 2.229% was the lowest since June 29,

when U.S. yields bottomed near 2.221%. 

     The market watched to see if U.S. yields will stabilize above or below the

55-day and 200-day moving averages, currently at 2.246% and 2.304%.  

     U.S. Treasury yields bottomed June 14 near 2.103%, which was the lowest

since Nov. 10, when 10-year yields saw a wide range of 1.991% to 2.145% two-days

after the U.S. election. Nov. 10 was the last time 10-year yields traded below

2.0%.

     U.S. yields subsequently recovered, with the June lows deemed overdone,

with 10-year yields rising to 2.396% July 7, the highest since mid-May. More

recently, U.S. yields topped out at 2.357% July 14 and have been on the

defensive subsequently. 

     As background, U.S. Treasury yields posted highs near 2.421% on May 11,

which was the highest yield since March 31, when the 10-year yield peaked at

2.431%. These levels will be the next larger topside hurdles.

     On March 14, ahead of the Fed decision, 10-year U.S. yields topped out at

2.628%.

     As a reminder, 10-year U.S. yields rallied from lows near 1.720% Nov. 9,

the day after the U.S. election, to highs near 2.639% on Dec. 15, 2016, which

was the highest since the Sept. 19, 2014, peak near 2.655%.

     Ten-year German Bund yields closed near 0.486% Wednesday, after trading in

a tight 0.481% to 0.502% range. 

     Bund yields backed off after the ECB left policy unchanged July 20, but

have not slipped too far as many still expect new insight into the central

bank's bond buying plan, set to expire at the end of December, either at the

Jackson Hole symposium in late August or at the next monetary policy meeting

Sept. 7.  

     The July 12 yield high of 0.619% was the highest since Jan. 4, 2016, when

Bund yields peaked at 0.627%, the 2016 high. The next level of resistance will

be 0.651%, the Dec. 30, 2015 high. 

     The June 14 low of 0.225% was the lowest since April 20, when yields

bottomed at 0.192%.

     As background, Bund yields fell to a low near -0.161% Sept. 27, 2016,

versus the life-time low around -0.2059% seen July 6, 2016.

     Ten-year UK Gilt yields closed around 1.236%, after trading in a 1.213% to

1.260% range. The July 7 high yield of 1.338% was the highest since Feb. 6, when

yields peaked at 1.370%.

     The June 14 low of 0.923% was the lowest since Oct. 7, when Gilt yields

bottomed near 0.905%.

     On Jan. 26, 2017, 10-year UK yields saw highs near 1.530%, which was the

highest yield since Dec. 15, when yields hit 1.536%, the highest since May 5,

2016, when Gilt yields saw a high near 1.538%.

     On the day, UK yields and cable were underpinned by anticipation ahead of

Thursday's BOE decision and release of the central bank's Inflation Report. 

     MNI's BOE watcher David Robinson says the BOE is "widely expected to result

in either increased, or at least unchanged, support in favor of unchanged policy

with the spotlight instead on whether the committee signals a near-term hike is

likely and whether it fleshes out its tightening strategy." See MNI Main Wire

story at 11:04 a.m. ET. 

     Ten-year Japanese government bond yields closed around 0.074%. Yields hit

highs near 0.108% on July 7, which prompted the Bank of Japan to step in buying

bonds, offering to buy 10-year JGBs in unlimited amounts at 0.11%. 

     Current high yields compare to April 20, when JGB yields flirted with

negative territory for the first time since last November and the Feb. 3 highs

near 0.150%, which were the highest since the BOJ introduced negative interest

rate policy back on Jan. 29, 2016.

     In currencies, the dollar managed to rebound from earlier lows, with some

pairs having more success than others. 

     The euro was closing near $1.1855, in the middle of a $1.1794 to $1.1910

range. 

     The earlier euro high was the highest since Jan. 6, 2015, when the pair

peaked near $1.1969. The euro last traded above the psychological $1.2000 mark

Jan. 5, 2015.

     The 2015 euro high was $1.2109, seen Jan. 1. And two weeks earlier, on Dec.

16, 2014, the euro peaked at $1.2570. 

     In other currencies, dollar-yen held around Y110.73 late Wednesday, in the

middle of a Y110.29 to Y110.98 range. 

     The pair bottomed at Y109.93 Tuesday, the lowest level since June 15, when

dollar-yen troughed at Y109.27.  

     The July 26 dollar-yen high near Y112.20 was the highest level since July

20, when the pair peaked at Y112.42. 

     Dollar-yen bottomed at Y108.83 June 14, the day U.S. 10-year yields posted

their most recent low of 2.103%, and then tracked U.S yields higher, topping out

near Y114.49 July 11, the highest level since mid March, around the same time

10-year yields hit 2.396%. 

     In commodities, spot gold was closing near $1,265.95 per ounce, after

trading in a $1,263.00 to $1,272.95 range, Tuesday's high of $1,274.16 was the

highest since June 14 when gold peaked at $1,280.77. 

     On June 6, the precious metal posted a high of $1,296.15, but then stalled,

creating a double-top with the $1,295.56 high seen April 17. Subsequently, gold

moved lower as U.S. Treasury yields and the dollar recovered,  bottoming July 10

near $1,204.90. A break above the June 14 highs will target the early June

peaks. 

     NYMEX September light sweet crude oil futures settled up $0.43 at $49.59

per barrel, after trading in a $48.55 to $49.65 range.

     On Tuesday, West Texas Intermediate saw a range of $48.37 to $50.43, with

that day's high the highest since late May.

     Most recently WTI topped out at $52.00 May 25, before the announcement of a

nine-month extension of OPEC/non-OPEC production cuts. The extension was largely

priced in and oil fell to $42.05 on June 21. 

     WTI's close back above the 200-day moving average, at $49.40, suggested

scope for another test of the psychological $50 mark. 

     Oil was underpinned on the day by EIA inventory data released earlier,

showing a crude stock decline of 1.53 million barrels in the week ending July

28. 

     In U.S. stocks, the DJIA posted a new life-time high of 22,036.10 earlier.

The index closed also at a life-time closing high of 22,016.24.

     On July 27, Nasdaq Composite and S&P 500 posted new life-time highs of

6,460.841 and 2,484.04 respectively, before succumbing to profit-taking in

subsequent sessions. 

     The S&P 500 closed up 0.05% at 2,477.57. At Wednesday's close, the index

was up 10.7% year-to-date. 

     On the risk front, the CBOE's volatility index or VIX was last around

10.28, in the middle of a 9.80 to 10.81 range. 

     The July 26 low of 8.84 was a new life-time intraday VIX low. The prior

life-time intraday low was 8.89, seen Dec. 27, 1993. 

     The VIX posted a high of 16.30 on May 18 at the peak of risk aversion, not

far from the 16.28 high seen April 17 that was driven by North Korea concerns.

     It would take a close above the 200-day moving average, currently at 12.07,

to suggest risk appetite was waning. The VIX last closed above its 200-day

moving average in mid-May, but then only briefly.

     Looking ahead, in addition to the BOE decision, the market will eye U.S.

data, which includes weekly jobless claims, June factory orders and ISM

non-manufacturing for July. MNI's median estimates are 240,000, 3.0% and 57.0. 

     The larger focus is on July employment data, set for release Friday. 

     MNI's median estimate is 181,000 for headline July non-farm payrolls, with

a range of 170,000 to 220,000. The unemployment rate is seen at 4.3% vs 4.4%

last and average hourly earnings are seen rising 0.3%. Due to a large 0.4% rise

in hourly earnings in July 2016, the year/year gain for July 2017 is likely to

be trimmed. 

     --follow MNIEyeonFX on twitter.com --

--MNI New York Bureau; tel: +1 212-669-6438; email: vicki.schmelzer@marketnews.com

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