In opinion of FX Strategists at UOB Group, USD/JPY is likely to extend the sideline theme in the near term.
Key Quotes
24-hour view: “While we were of the view yesterday’s early morning rapid and sharp decline “is running ahead of itself”, we expected USD to “trade sideways at lower levels”. The subsequent outsized rebound of close to 200 pips was clearly unexpected (USD registered a range of 195 pips, between 104.44 and 106.39 before closing higher by +0.69% at 106.12). The rapid swing has clouded the short-term outlook but barring any further market moving headlines, the volatility in USD should ease off. All in, USD is expected to trade sideways, likely between 105.50 and 106.50″.
Next 1-3 weeks: “After USD opened sharply lower and plunged yesterday, we indicated that “further decline is not ruled”. However, we added, “it is left to be seen if USD has enough momentum to challenge 104.00″. That said, the fleeting nature of the decline came as a surprise as USD rebounded strongly from 104.44 and easily exceeded our strong resistance at 106.20 (overnight high of 106.39). The breach of the strong resistance indicates that our view was proven incorrect within a day. The price action has resulted in a mixed outlook and USD could trade sideways within a broad 105.00/107.00 range for now (the 104.44 low is acting as a solid support and is unlikely to come into the picture for a while)”.
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