JPY Trading Outlook (02-12-2014)

USD/JPY The USD/JPY’s fleeting surge to a 7-yr high at 119.15 on Moody’s downgrade of Japan to A1 was followed by a rout that initially found support at the 100 & 200-HMA and the hourly Cloud base at 118.07, but the rebound from there to 118.53 in early NY drew in fresh sellers and a push below the o/n lows and the daily Tenkan at 117.98. A weak US stock mkt opening and pre ISM angst got prices to 117.86, but the above-f/c ISM quickly revived prices and Tsy yields. Though a close below the Tenkan looks like it will be averted, and with it the first major sell signal since the rally began on Oct 15, prices have yet to make a run at the 118.53 intraday rebound highs. The USD was generally weaker amid the overbought rebound in energy and other commodities, thus limiting USD/JPY gains. The Moody’s Japan downgrade may have some resonance if it means the LDP-led coalition’s majority is diminished more than expected due to doubts about Abenomics (3rd arrow particularly), but QQE2 means any rise in JGB yields will be de minimis and BOJ balance sheet expansion will make the yen a sell on rallies sans a global risk-off shake-out.