  We present photometric observations and analysis of the second microlensing
event detected towards the Small Magellanic Cloud (SMC), MACHO Alert 98-SMC-1.
This event was detected early enough to allow intensive observation of the
lightcurve. These observations revealed 98-SMC-1 to be the first caustic
crossing, binary microlensing event towards the Magellanic Clouds to be
discovered in progress.
  Frequent coverage of the evolving lightcurve allowed an accurate prediction
for the date of the source crossing out of the lens caustic structure. The
caustic crossing temporal width, along with the angular size of the source
star, measures the proper motion of the lens with respect to the source, and
thus allows an estimate of the location of the lens. Lenses located in the
Galactic halo would have a velocity projected to the SMC of v^hat ~1500 km/s,
while an SMC lens would typically have v^hat ~60 km/s.
  We have performed a joint fit to the MACHO/GMAN data presented here,
including recent EROS data of this event. These joint data are sufficient to
constrain the time for the lens to move an angle equal to the source angular
radius; 0.116 +/- 0.010 days. We estimate a radius for the lensed source of 1.4
+/- 0.1 R_sun. This yields a projected velocity of v^hat = 84 +/- 9 km/s. Only
0.15% of halo lenses would be expected to have a v^hat value at least as small
as this, while 31% of SMC lenses would be expected to have v^hat as large as
this. This implies that the lensing system is more likely to reside in the SMC
than in the Galactic halo.
