Friday's payrolls data were only modestly better than expected but they have provided the market with more reason to extend its bullish tone. Asian equity market followed the general trend higher overnight as have the commodities currencies such as the AUD, NZD and the CAD.

The safe haven currencies (CHF and JPY) are clearly vulnerable in this environment. The JPY promises to stay in the headlines during the course of the week. The view that the JPY is entering into a phase of broad-based weakness is supported by last week's break of key technical levels by USD/JPY, AUD/JPY, EUR/JPY and CAD/JPY.

The decision by the BoJ to publish a breakdown of the Quarterly Tankan survey into pre and post respondents has produced the inevitable result that large manufacturers' responses after the disaster were more pessimistic.

The fall was not as sharp as it could have been, though it is clearly difficult to draw too much direction for data collected so soon after the earthquake and tsunami. The government has estimated that the direct damage from the disaster may reach around Y25 trn, which is around 5% of GDP, but it is unclear how deep and for how long the production disruptions caused by the nuclear threat will be.

The huge liquidity add by the BoJ in the aftermath of the disaster combined with the doubling to Y10 trn of its quantitative easing program is clearly yen negative. This week's BoJ policy meeting may provide further clarity as to the likelihood of additional policy measures. It will certainly underpin the perception that as other central banks are preparing the ground for tightening the BoJ is falling further behind the pack.

The BoJ policy backdrop suggests that nominal yields are likely to remain depressed. Even though better real yields are often cited as a support for the yen, EUR/JPY is at risk of being drawn higher by the 2y Bund/JPN nominal spread. Similarly USD/JPY and AUD/JPY are lagging the move in nominal yield spreads.

This week EUR/JPY will be of particular interest given expectations that the ECB will be hiking rates on Thursday. Despite the ongoing Eurozone peripheral crisis, the resilience of the EUR bodes well for further upside in EUR/JPY.

The weekly cloud top may provide some resistance at EUR/JPY121.97. CAD/JPY may also be a significant mover ahead of the Canadian payrolls data on Friday and the potential for the BoC to use to April 12 policy meeting to start laying the groundwork for an interest rate hike this summer.

EUR/USD

Following a spate of more hawkish remarks from Fed officials last week, Dudley's more dovish words lent a little more perspective. The US employment rate may have fallen significantly from its post recession highs, but it is could still be years before it reaches levels more 'normal' for the US economy.

QE may be drawing to a close, but for certain the FED will be lagging the tightening cycle of the ECB, potential by a wide margin. Insofar as interest rate differentials have been the greatest driver of EUR/USD this year despite the peripheral crisis, EUR/USD is set to remain well supported this week. Resistance at EUR/USD1.4250/80.

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