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USD/JPY risks a deeper retracement on a breakdown of the 106.70 level, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “We expected USD to weaken yesterday but held the view that ‘the major support at 107.00 is not expected to come into the picture’. However, USD dipped slightly below 107.00 (low of 106.97) before ending the day on a weak note at 107.09 (-0.58%). Conditions remain severely oversold but the weakness in USD is not showing sign of stabilization just yet. From here, USD could grind lower but a break of the next support at 106.70 would come as a surprise. On the upside, a move above 107.60 would indicate that the weakness in USD has stabilized.”

Next 1-3 weeks: “USD is currently holding just above the bottom of the 107.00/109.00 range that we indicated on Tuesday (09 Jun). The pullback in USD over the past few days has been more ‘aggressive’ than anticipated but we are not convinced that USD is ready to move into a negative phase just yet. Only a daily closing below 106.70 would indicate that USD is ready to move lower in a sustained manner towards the support at 106.00. At this stage, the prospect for a sustained decline in USD is not high but it would continue to increase unless USD can move above 108.00 within these few days. To put it another way, the outlook for USD is deemed as mildly negative for now.”

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