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USD/JPY risks a potential correction lower in the next weeks, suggested UOB Group’s FX Strategists.

Key Quotes

24-hour view: “Our expectation for USD to weaken yesterday was correct but we did not anticipate the sharp sell-off and the subsequent weak daily closing at 104.57 (-0.62%). The -0.62% decline is the biggest 1-day drop in three months. Conditions are clearly oversold and while a dip below the overnight low of 104.48 is not ruled out, the next support at 104.20 is not expected to come into the picture. On the upside, a break of 105.00 would indicate that the current weakness has stabilized (minor resistance is at 104.85).”

Next 1-3 weeks: “While we noted yesterday that ‘upward momentum has been dented’ and ‘a break of 104.80 would indicate that 106.00 is out of reach’, we did not anticipate the sharp and swift manner by which USD pare back its recent gains (USD lost 0.62%, its biggest 1-day drop in 3 months). The risk has shifted to the downside but the rapid decline appears to be running ahead of itself and the major support at 104.20 may not come not into the picture so soon. On the upside, a break of 105.35 (‘strong resistance’ level) would indicate that the downside risk has dissipated.”