By Vicki Schmelzer

NEW YORK, July 30 (MNI) - This week has seen the euro and other major currencies push higher versus the dollar, while U.S. Treasury yields have moved lower.

Traders were initially a bit disconcerted by this phenomenon because this is the first time in many months, if not years, that the FX 101 rulebook is being followed, i.e. lower U.S. yields mean a weaker dollar.

Throughout most of the financial crisis, falling U.S. yields has been the result of safe-haven buying of Treasuries, which typically has gone hand in hand with overall dollar demand.

The specific moves in fixed income seen Thursday and Friday were driven partly by shifting views about Federal Reserve policy, in the wake of comments by St. Louis Federal Reserve President James Bullard that were deemed dovish, and partly by month-end repositioning, traders said.

U.S. 10-year Treasury yields, which closed at 2.996% last week, were closing Friday around 2.91% after posting a low near 2.90% earlier.

The dollar weakness seen in the past 48 hours may also have had something to do with end-of-month hedging, but time will tell on that, they said.

There was a clear sense of risk appetite in FX and commodities, which did not seem to jibe with the lower Treasury yields being seen.

The euro was trading at $1.3060 Friday, in the middle of the week's range of $1.2874 (Monday low) to $1.3108 (Thursday high).

"Yesterday's brief euro break above $1.31 for the first time in three months will sustain support as long as no decline occurs below $1.2950-55," said Ashraf Laidi, chief FX strategist at CMC Markets.

The focus now is on technical resistance at $1.3120-25, "which is the 38.2% retracement of the euro's decline from the November highs to the June lows, as well as the resistance on the reverse head and shoulders formation," he said.

Also, candlestick charts for July show a notable monthly rally, "which has all the ingredients of an effective monthly reversal, especially as it is accompanied by a bullish cross-over in the stochastics," he said.

Laidi urged caution, however, and warned that the pattern may be similar to the sharp December 2008 rally, "which was followed by 2 monthly declines coinciding with the last two months of the deleveraging sell-off in global equities."

Any larger euro sell-off should find support around $1.2500, he said.

Traders were also keeping a close eye on dollar-yen, which broke below July lows near Y86.25/32 Friday to post a new eight-month low around Y85.95.

Dollar-yen, trading at Y86.45 in afternoon action Friday, earlier came within striking distance of the November 30, 2009 low near Y85.83.

As a reminder, November 27, the day after the U.S. Thanksgiving Day holiday, global financial markets were roiled by concerns about Dubai World's ability to repay debt, with dollar-yen falling to a fourteen and a half year low near Y84.80.

Despite various clucking sounds from Japanese officials recently, the market does not look for the Bank of Japan to intervene to weaken the yen until dollar-yen reaches levels closer to Y80, traders said.

However, unlike November, when there was also saber-rattling by senior Japanese officials, this time there are lower U.S. Treasury yields and a softer euro-yen to contend with, which may be another factor in determining when or if the Ministry of Finance (MOF) decides to ask the BOJ to step in.

In other markets, the S&P 500 was trading at 1106.02 Friday afternoon, after holding a 1088.31 to 1106.02 range. The S&P posted a five-week high of 1120.85 Tuesday.

The index flirted with its 200-day moving average (in place Friday at 1114.38) earlier in the week.

The Reuters-Jefferies CRB index closed at 274.35, up 2.9% from last Friday's close at 266.62 and at 12-week highs.

This week, there were some unexpected positive U.S. data surprises (new home sales, Chicago PMI, Michigan Sentiment) that served to overshadow other less upbeat data (durable goods and advance Q2 GDP).

Looking ahead, next week's U.S. data includes such key releases as July ISM and ISM non-manufacturing, June NAR pending home sales, weekly jobless claims, and July non-farm payrolls.

The focus will be on Friday's jobs report and whether a larger number of private jobs have been created.

The median estimate in a Market News International survey of economists looks for non-farm payrolls to fall by 70,000 in July. Estimates range from -150,000 to zero.

Private payrolls are seen rising by 100,000, with estimates there at +50,000 to +140,000.

The unemployment rate is seen rising slightly to 9.6%. Estimates range from 9.3% to 9.7%.

In addition to U.S. data, the market is eager to see the results of two purchasing managers surveys (CFLP due out August 1) and HSBC (due out August 2) out of China.

The talk in recent sessions has been that the CFLP PMI might fall below the make or break 50 level.

Offering insight into the upcoming PMIs, Market News International overnight released its monthly China Business Sentiment survey, showing modest improvement in the headline index.

Overall business conditions for Chinese companies ticked up in July following June's sharp fall, with the current conditions index rising to 64.94 from June's 63.51 after hitting 78.46 in May.

The index was impacted in June by government tightening measures but also widespread concerns that the debt crises in the eurozone's peripheral members could spread and engulf the global economic recovery.

Concerns about the impact of the eurozone crisis have abated somewhat and Chinese companies are now seeing an increase in business ahead of the Christmas season in western economies, the results suggest.

Still, the results indicate Chinese firms remain cautious about the outlook for demand, and worried about rising raw material and labor costs.

The MNI China Business Sentiment Survey was conducted July 7-22 with 153 listed companies taking part.

** Market News International New York Newsroom: 212-669-6430**