JPY Trading Outlook (23-05-2014)

USD/JPY The downtrend from the May 2 peak was breached by today’s USD/JPY advance, as the blowback from yesterday’s failed attempt to remove this year’s lows by 100.76 continued. The yen is correcting a generally overbought condition on the dailies, while overbought US Tsys come in for a correction that’s lifted yields a bit in support of the dollar. The low-hanging short-covering fruit is now harvested and prices are approaching their first real supply in the 101.90-102 range from exporters and mean reversion traders (21-DMA, daily Kijun & recently broken M-T up TL there). With net spec yen shorts still hefty at 64k last week, even an interim positioning dip is likely to leave longer-term, struggling, USD/JPY longs looking for rallies to fade. MOF flows showing Japanese net buyers of Y1.4trln of foreign bonds is burnishing the yield-search story, but the Kampo move was too small to matter for more than a day, while GPIF et al reallocation is a well-known story. In any event, we doubt USD/JPY will get past the mid 102.00s. US data du jour were uninspiring. EUR/JPY is also getting an oversold bounce as June ECB rate cuts are well anticipated by now.