OnTheRadar: Mkt Players Wary, Hope NFPs Can Spark New Trend

--Dollar-yen Struggles To Close Above Y110, Last Sub Y110 Close Mid-June

--DJIA Again Posts New Record Intraday High, Record High Close, Other EQ Sees

Profit-taking

By Vicki Schmelzer

     NEW YORK (MNI)   - Ahead of Friday's release of U.S. non-farm payrolls for

July, market players voiced concern that even a solid jobs report, with clear

signs of wage inflation, might not be enough to prompt a sustained rebound in

U.S. Treasury yields and the dollar. 

     Late-day trading Thursday found ten-year U.S. Treasury yields set to close

at the lowest levels since mid June and dollar-yen struggling to stay above the

psychological Y110 mark. Dollar-yen last closed below Y110 in mid-June. 

     Ten-year U.S. Treasury yields were last near 2.221%, after trading in a

2.218% to 2.269% range. 

     There was a flurry of demand for U.S. Treasuries in response to media

reports stating that Special Counsel Robert Mueller has impaneled a grand jury

in Washington to investigate allegations of Russian interference in 2016 U.S.

election. 

     After closing below the 200-day moving average, now 2.306%, earlier in the

week, 10-year yields have also closed below the 55-day moving average at 2.245%.

Earlier, U.S. yields also broke below last week's lows near 2.229, seen July 21

and July 24, as well as the June 29 lows near 2.221%. 

     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 0.453% Thursday, after trading in a

0.450% to 0.498% range. The 55-day moving average is found at 0.407% and will

act as support. 

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

until this week, yields have held above 0.50% on expectations of 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 1.149%, after trading in a 1.145% to

1.249% range. Yields were weighed by disappointment with regard to the Bank of

England. While no change in the bank rate was expected, some expected more

hawkish rhetoric or more MPC voters seeking tightening than the 6-2 slip seen

earlier. 

     BOE Governor Mark Carney said that the market was likely underestimating

the total amount of tightening required over the next three years, but he

refused to be drawn on when the first rate hike was likely to come. See MNI Main

Wire story at 9:02 a.m. ET for details. 

     The July 7 high Gilt 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%.

     Ten-year Japanese government bond yields closed around 0.076%. 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 held a firm tone versus the euro and sterling,

but remained on the defensive versus the yen. 

     The euro was closing near $1.1875, in the middle of a $1.1831 to $1.1893

range.

     The pair posted a 30-month high near $1.1910 Wednesday, 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 Y110.00 late Thursday, on the

low side of a Y109.86 to Y110.83 range. 

     Earlier, the pair took out Tuesday's lows near Y109.93, which at the time

was the lowest level since June 15, when dollar-yen troughed at Y109.27. 

     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%. 

     More recently, dollar yen rallied to Y112.20 July 26, which was the highest

level since July 20, when the pair peaked at Y112.42.

     In commodities, spot gold was closing near $1,267.40 per ounce, after

trading in a $1,257.02 to $1,269.82 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. 

     In Gold Demand Trends Q2 2017, released earlier, the World Gold Council

noted that Q2 demand of 953.4 tonnes was 10% lower than in 2016, while first

half 2017 demand slowed 14% to 2,003.8 tones. 

     "Y-o-y comparisons are affected by record ETF inflows in 2016: demand from

this sector slowed dramatically after last year's H1 surge," the WGC said. 

     NYMEX September light sweet crude oil futures settled down $0.56 at $49.03

per barrel, after trading in a $48.78 to $49.96 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. Tuesday's range will act as support

and resistance. 

     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 continues to trade both sides of its 200-day moving average, currently

at $49.40. 

     In U.S. stocks Thursday, the DJIA posted a new life-time high of 22,044.85

earlier. The index closed also at a new life-time closing high of 22,026.10

     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 down 0.22% at 2,472.16. At Thursday's close, the index

was up 10.4% year-to-date. 

     Traders were also keeping track of the Russell 2000 index, which often

leads larger equity moves. 

     The Russell 2000 posted highs near 1,452 on July 21, July 25 and July 26

and has moved lower subsequently, breaking but not closing below its 55-day

moving average, near 1,410 currently, on Wednesday. Thursday's close of 1,405.23

targeted a larger support zone of old lows in the 1,395-1,400 from mid June to

early July. 

     The CBOE's volatility index or VIX was last around 10.24, in the middle of

a 9.90 to 10.60 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 12.04,

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 to Friday's unemployment data, 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. 

     Recruiters interviewed by MNI for this month's REALITY CHECK series on the

U.S. jobs market, reported steady demand for workers as well as signs of wage

inflation. See MNI Main Wire at 10:18 a.m. ET and 10:28 a.m. ET for details. 

     --follow MNIEyeonFX on twitter.com --

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

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