JPY Trading Outlook (05-05-2014)

USD/JPY spiked beyond its daily Cloud top at 102.84 before faltered in front of the 61.8% of the early Apr slide at 103.06 in the wake of the strong US NFPs. Surging Tsy ylds did the heavy lifting as the holiday-thinning and BOJ’s wait-and-see left N225 futures little changed. Unfortunately for USD/JPY yen cross buyers, the demand for dollars quickly dried up and prices fell below their pre NFP levels, the O/N lows and the daily Cloud base before finding support by Thur’s 102.13 low. Internals of the Jobs report were poor and the US curve flattening from both ends suggested tapering and eventual tightening loom over the medium-term. S&Ps & N225 futures softened in the face of those prospects amid uncertainty about the post-winter US recovery. Long wick on the USD/JPY daily candle looks bearish, but the pattern of higher swing lows since Fed has yet to be broken. Monday sees huge strikes that should encapsulate spot – 5bln between 101.50-102.00 and similar size between 102.50-103.00. There are also some 8bln expiries next week between 103.00-104.00. Implied vols are at their lowest since ’07 to suggest no real expectations of a break out yet.