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US Dollar falls to 2 month low

10-Yr: +05/32..1.714%.. USD/JPY: 83.41.. EUR/USD: 1.3158

The US Dollar Index holds on session lows near 79.50, on track for its lowest close since 18 October The Index was never able to find its footing above the flat line as sellers provided stiff resistance near 80.00.

EUR/USD is +90 pips at 1.3165, and is on track to close at its best level since early May. Some late-morning buying ran the single currency above the critical 1.3100 resistance mark, triggering stops that produced a move up to current mark. Monday, ECB head Mario Draghi is scheduled to testify in Brussels in front of the Committee on Economic and Monetary Affairs.
GBP/USD is +65 pips at 1.6175 with today’s strength likely leading to the best close in over 2 months. News flow out of the UK has been quiet with Friday’s action piggybacking that of the Euro. Britain’s Rightmove Home Price Index will be released Sunday evening.

USD/CHF is -60 pips at .9175 with the pair on track for a 5 th straight day of losses. Sellers cracked the important .9925 support makr, and have the pair on pace for its lowest close in 7 months. The .9000 support area is now the focus.

USD/JPY is -20 pips at 83.45 after early strength provided a test of the Key 84.00 resistance Mark. The early strength ran the pair to an 8-month high ahead of Sunday’s Lower House elections. Polls suggest Shinzo Abe remains on track to unseat Prime Minister Yoshihiko Noda.

AUD/USD is +45 pips at 1.0570 with trade testing 9 month highs. The hard currency failed to see any notable reaction to the 2nd straight expansionary reading of China’s HSBC Flash Manufacturing PMI number with all of the gains coming as the USD declined.

USD/CAD is +15 pips at .9960, and is the only major pair exhibiting dollar strength. Friday’s gains came after Canada’s manufacturing sales crossed the wires at a disappointing -1.4%Y-Y, 0.0% Y-Y expected. Canada’s foreign securities purchases are due out Monday.

On the Week: US Treasuries see losses

10-Yr: +07/32..1.708%.. USD/JPY: 83.47.. EUR/USD: 1.3155

The Federal Open Market Committee decided to purchase $45-B worth of Treasuries each month upon completion of the ‘Operation Twist’ program, and to keep its Fed Funds Rate at Zero, as long as the unemployment rate holds above 6.5%.

The data out this week was mixed as inflation readings cooled, industrial production beat, and retail sales missed.

In Europe: the next Greek aid package was approved with the struggling country set to receive EUR 49-B over 4 disbursements that will take place through March 2013.

EU finance ministers agreed to ECB banking supervision, which should be fully operational by Y 2014. Italian

Prime Minister Mario Monti announced he will resign after the new budget is passed.

Eurozone Manufacturing and Services PMI data was mixed while both the German ZEW Economic Sentiment reading 6.9 actual v. -11.4 expected and the UK jobs report beat. The UK’s claimant count change slipped 3.0K +5.9K expected while the unemployment rate held at 7.8% 7.9% expected.

In Asia: Chinese data was plentiful. Chinese CPI climbed 2.0% Y-Y, 2.1% Y-Y expected; PPI eased 2.2% Y-Y, 2.0% Y-Y expected; fixed asset investment advanced 20.7% YTD-Y 21.0% YTD-Y expected; industrial production grew 10.1% Y-Y, 9.8% Y-Y expected; and the trade surplus narrowed to $19.6-B $26.7-B expected, $32.0-B prior, as exports rose just 2.9%, 9.0% expected. Other data from the Middle Kingdom showed new loans miss estimates CNY 523-B actual Vs CNY 500-B expected, and an improvement in the HSBC Flash Manufacturing PMI 50.9 actual Vs 50.5 prior.

The JPY continued to weaken ahead of this weekend’s Japanese Lower House election. The currency fell to an 8-month low of 83.95 during Friday’s session. Japanese data continues to miss estimates with core machinery orders climbing 2.6% M-M, 3.1% M-M expected, and the Tankan Non-Manufacturing Index fell to 4, 8 prior. Another disappointing Tankan Manufacturing Index showed business sentiment deteriorated to near a 3 yr low of -12, -9 expected, -3 prior.

US Treasuries were under pressure all week as all maturities aside from the 2-yr finished in negative territory.

Selling was most severe in the belly of the curve where both the 7- and 10-yr yields closed the week up close to 10 bps.

Thursday, the 10-yr yield closed at a 1-month high near 1.730%, Friday’s bid dropped it to 1.708% at week’s end. The recent weakness has longer dated yields pressuring their 200-Day Moving Averages, a level they have not seen an extended time above since late Y 2010 and early 2011.

The 2-yr note was the lone gainer on the week with buying dropping its yield 1 bp to near 0.240%.

This week’s selling swung the yield curve steeper as the 2-10-yr spread widened to 147.5 bps.

Precious metals saw weekly losses as Gold fell 13 to 1697 and Silver fell 1.00 to near 32.30.

More data flow begins Monday with Empire Manufacturing (8:30a) and Net Long-Term TIC Flows (9a).

US Federal Reserve Governor Stein will speak in Frankfurt, Germany on “Dollar Funding and Global Banks” (11 a); and Richmond’s Lacker will give his “Economic Outlook, December 2012” in Charlotte, NC (1.00p).