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USD/JPY’s outlook remains negative although a test of 104.16 looks somewhat unlikely for the time being, according to FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectation for USD to ‘consolidate and trade sideways within a 104.70/105.30 range’ was wrong as it dropped to a low of 104.51 before ending the day on a soft note at 104.73 (-0.20%). The decline is severely oversold but there is room for USD to dip below 107.50 first before a more sustained rebound can be expected. For today, last month’s low at 104.16 is not expected to come into the picture. Resistance is at 104.95 followed by 105.15.”

Next 1-3 weeks: “Yesterday (16 Sep, spot at 105.40), we indicated that USD ‘is expected to remain weak and a break of 105.20 would shift the focus to 105.00’. The pace and extent of the subsequent decline exceeded our expectation as USD dropped to a low of 104.78 before settling on a weak note at 104.94 (-0.46%). While the outlook remains weak and the next major support is at the July’s low of 104.16, severely oversold short-term conditions suggest this level may be out of reach this time round. Note that there is another support level at 104.50. All in, the negative phase in USD that started earlier this week (see annotations in the chart below) is deemed as intact as long as USD does not move above 105.70 (‘strong resistance’ level was at 106.00 yesterday). Meanwhile, oversold short-term conditions could lead to a couple of days of consolidation first.”