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By Vicki Schmelzer
NEW YORK (MNI) - At Friday's close, U.S. Treasury yields and the dollar
were off the week's highs but underpinned nevertheless by perceived increased
odds of a December Fed rate hike and prospects of U.S. tax reform.
U.S. stocks were buoyant at month-end and quarter-end, posting new
Ten-year U.S. Treasury yields were last near 2.335%, on the high side of a
2.296% to 2.337% range. Thursday's yield high near 2.359% was the highest level
since July 13, when yields peaked at 2.366%.
On Thursday, ten-year U.S. yields vaulted the 200-day moving average,
currently near 2.325% and flirted with that mark again Friday. Yields have
closed below the 200-day moving average since late July.
After a larger yield sell-off in June, U.S. yields subsequently recovered,
and 10-year yields rose to 2.396% July 7, the highest since mid-May. If the
200-day moving average decisively gives way, this will be the next topside
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
On March 14, ahead of the Fed decision, 10-year U.S. yields topped out at
The Sept. 8 yield low near 2.016% was the lowest since Nov. 10, when yields
saw a wide range of 1.991% to 2.145% - two-days after the U.S. election.
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 0.464% Friday, after trading in a
0.447% to 0.484% range. Thursday's high of 0.518% was the highest since August
1, when Bund yields peaked near 0.556%.
The low of 0.292%, seen Sept. 8, was the lowest Bund yield since June 27,
when yields troughed at 0.238%. The June 14 low of 0.225% was the lowest since
April 20, when yields bottomed at 0.192%.
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 would
be 0.651%, the Dec. 30, 2015 high.
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 Japanese government bond yields closed around 0.068%. When U.S.
and other global yields were at recent lows earlier in September, JGB yields
flirted with negative territory and tested the lowest yields since mid November.
JGB yields hit highs near 0.108% July 7, which prompted the Bank of Japan
to step in buying bonds, offering to buy 10-year JGBs in unlimited amounts at
Current low JGB yields compared to the Feb. 3 highs near 0.150%, which were
the highest since the BOJ introduced negative interest rate policy back on Jan.
Ten-year UK Gilt yields closed around 1.365%, after trading in a 1.342% to
The Sept. 8 low of 0.951% was the lowest since June 15, when yields tested
lows near 0.938% and Thursday's high near 1.428% was the highest since Feb. 2,
when UK yields hit 1.465%.
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%.
In currencies, the euro held near $1.1816 late Friday, in the middle of a
$1.1773 to $1.1833 range. On the day, pair traded both sides of the 55-day
moving average, at $1.1818, making it hard to discern near-term direction.
The Sept. 27 low of $1.1717 was the lowest since August 18, when the euro
bottomed at $1.1709. A break of $1.1700 will target the August 17 lows near
The Sept. 8 high of $1.2092, seen at the peak of dollar selling, was the
highest euro level since Jan. 2, 2015, when the pair topped out at $1.2108. The
2015 high was $1.2109, seen Jan. 1.
In other pairs, dollar-yen held near Y112.59, in the middle of a tight
Y112.22 to Y112.74 range.
The Sept. 27 high of Y113.26 was the highest level since July 14, when
dollar-yen peaked at Y113.58. The July high was Y114.49, seen July 11.
The 200-day moving average, currently at Y112.04, will act as initial
Those trying to gauge overall U.S. dollar direction, were keeping an eye on
the Mexican peso, often used as a proxy for emerging market risk.
As larger push higher in USDMXN would suggest that global investors foresee
higher U.S. Treasury yields which would hurt EM economies.
Earlier this week, dollar-peso vaulted the psychological Mxn18.0000 mark,
with follow trough to Mxn18.2994 Thursday, the highest level since July 7, when
the pair posted a high near Mxn18.3134.
Dollar-peso was closing near Mxn18.2120, on the high side of a Mxn18.0884
to Mxn18.2374 range. A break above the July 5 high near Mxn18.4056 would target
the June 5 highs near Mxn18.8230.
In commodities, spot gold held near $1,280.30 per ounce, after trading in a
$1,279.79 to $1,290.38 range. Gold bottomed at $1,277.83 Thursday.
On Sept. 27, gold broke below its 55-day moving average, currently around
$1,290, for the first time since late July, which targets the August 25 lows
near $1,276.36 and mid August lows near $1,267-$1,268
The $1,357.61 gold high, seen Sept. 8 at the peak of U.S. dollar sales and
risk aversion, was the highest since August 16, 2016, when the precious metal
peaked at $1,358.21.
NYMEX November light sweet crude oil futures settled up $0.11 at $51.67 per
barrel, after trading in a $51.25 to $51.77 range. Thursday's high of $52.86 was
the highest level since April 17, when crude peaked at $53.21.
West Texas Intermediate's break, earlier in the week, above the May 25 high
of $52.00, still had some eyeing a move to $53.76, the April 12 high.
Crude oil peaked in late May ahead of the announcement of a nine-month
extension of the OPEC/non-OPEC production cuts.
This extension was largely priced in and crude prices fell to $42.05 on
June 21 before recovering. There has been talk recently that OPEC may extend the
current agreement, set to expire in March 2018, until the end of next year.
Baker Hughes rig count data, released Friday, showed a six rig increase to
750 rigs in U.S. "oil-only" rigs for the week ending Sept. 29. This is less than
double the 425 rigs seen a year ago. Rigs are still down 53.4% from the peak rig
count of 1,609 rigs seen Oct. 10, 2014.
In U.S. stocks, the S&P 500 closed up 0.37% at 2,519.36, after trading in a
2,507.99 to 2,519.44 range. The earlier high was a new record intraday high and
Friday's close was a new life-time high close.
At Friday's close, the S&P 500 was up 12.5% year-to-date.
Market players were also monitoring the Russell 2000 index, which often
leads larger stock swings. This week, the Russell 2000 has been in hot demand,
with smaller U.S. companies as seen as more likely to benefit from lower
corporate taxes than larger U.S. firms.
The Russell 2000 was last near 1,491, down from the new record high of
1,493.555 posted earlier.
Last month, the index bottomed at 1,349.354 on August 18, the lowest level
since April 17, when the Russell 2000 bottomed at 1,345.363. From last month's
low to Friday's high, the index was up 10.7%.
On risk appetite, the CBOE's volatility index or VIX was last at 9.48, on
the low side of a 9.36 to 9.83 range. The index would need to move decisively
back above its 200-day moving average, currently at 11.41, for any suggestion of
waning risk sentiment.
The VIX high of 17.28, seen August 11, was the highest since Nov. 9, the
day after the U.S. election, when the VIX peaked at 21.48. The high for this
month has been 14.06, seen Sept. 5.
The July 26 low of 8.84 was a new life-time intraday VIX low (prior
life-time intraday low was 8.89, seen Dec. 27, 1993).
Editor's Note: This is the final OnTheRadar report. With Vicki Schmelzer
moving on to author MNI's Reality Check series, OnTheRadar will be discontinued
after Sept. 29. If you would like to receive end-of-day FX or fixed income
coverage via email, please contact email@example.com for possible
Author's Note: Heartfelt thanks to the many traders, analysts, economists
and strategists for their help over the years.
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--MNI New York Bureau; tel: +1 212-669-6438; email: firstname.lastname@example.org