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A deeper move to the 104.00 region looks unfavoured for the time being despite the negative outlook in USD/JPY, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “While our expectation for USD to weaken yesterday was correct, our view that ‘105.00 is likely out of reach’ was not as USD dropped to a low of 104.78 during NY hours. The rapid decline over the past few days is deep in oversold territory now and further sustained USD weakness is unlikely. For today, USD is more likely to consolidate and trade sideways at these lower levels, expected to be within 104.70/105.30 range.”

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.”