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USD/JPY could see its downside accelerated and a potential test of the 104.70 region, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectation for USD to ‘trade at a lower trading range of 105.00/105.85’ was incorrect as it staged a relatively robust recovery to a high of 106.09. Downward momentum has more or less dissipated and USD has likely moved into a consolidation phase. For today, USD is expected to trade within a 105.50/106.20 range.”

Next 1-3 weeks: “We highlighted yesterday that ‘the risk has shifted to the downside’ and USD ‘could test the solid support at 104.70’. We added, ‘the “strong resistance’ at 106.30 is likely strong enough to hold, at least for these few days’. The subsequent rebound in USD is more robust than anticipated (high of 106.09) and while we continue to see chance for USD to test 104.70, we are moving the ‘strong resistance’ level slightly higher to 106.55. Meanwhile, oversold short-term conditions could lead to a couple of days of consolidation first (before downside risk should increase again).”

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