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Despite extra weakness remains on the cards, it is unlikely that USD/JPY could drop to sub-106.30 levels, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “While we expected USD to ‘weaken further’ last Friday, we did not anticipate the manner by which it plunged to 107.49 (the subsequently loss of -1.38% is the largest 1-day decline in 33 months). USD extended its decline upon opening this morning and the risk is still on the downside. Only a move above 108.70 would indicate the current weakness has stabilized. Until then, USD could continue to weaken but a sustained decline below 107.00 is unlikely for today.”

Next 1-3 weeks: “We expected ‘further USD weakness’ last Friday (28 Feb, spot at 109.50) but clearly did not anticipate the outsized plunge that led to a low of 107.49. Such large 1-day decline (the -1.38% drop last Friday is the largest in 33 months) is rare and while further weakness is not ruled out, the odds for a sustained drop below 106.30 are not high. Meanwhile, USD could continue to trade in a choppy manner over the next few days and only a move back above 110.00 (‘strong resistance’ level was at 110.45 last Friday) would indicate the current weakness has stabilized.”