JPY Trading Outlook (04-12-2014)

USD/JPY Despite soft ADP and US labor costs data, USD/JPY rallied past 119.50 barriers and stops on reports of a Nikkei story indicating Abe’s ruling coalition will have no problem maintaining the 2/3 majority in the Dec 14 polling. This reinforced the existing appetite for selling yen amid QQE2, GPIF, falling oil prices and rising equities. The dollar side was reinforced late in the Ldn session by the above-f/c ISM Non-Mfg result; a result that was apparently somehow leaked early to the market. The Tsy curve held up better at the front end as L-T inflation expectations recede amid attempts by Dudley and others to temper any negative financial market reaction to Fed normalization next year and beyond. Offers at 119.85 up the 120 barriers are slowly being chewed through as the NY session winds down. Bids now building as close at 119.50 and 119.15-25. The mkt is short gamma above 120. Expiries between now and Dec 15 are ltd topside to 122, with the vast majority at or below 120. Riskies are favoring calls the most since last month’s peak. EUR/JPY found support by the Tenkan at 147, but Q1 ECB QE fears are crimping the uptrend. CAD & GBP crosses outperformed.