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FX Strategists at UOB Group do not rule out a move lower in USD/JPY, although a breach of 106.30 looks unlikely for the time being.

Key Quotes

24-hour view: “The sudden and sharp drop in USD came as a surprise. Despite the relatively sharp decline, downward momentum has not improved by as much. However, the risk is clearly on the downside but for today, the 106.60 support could be strong enough to check any weakness in USD (there is another strong support at 106.30). On the upside, USD has to move back above 107.75 in order to indicate the current downside risk has dissipated (minor resistance is at 107.50).”

Next 1-3 weeks: “We expected ‘further USD weakness’ last Friday (28 Feb, spot at 109.50) but clearly did not anticipate the outsized plunge that led to a low of 107.49. Such large 1-day decline (the -1.38% drop last Friday is the largest in 33 months) is rare and while further weakness is not ruled out, the odds for a sustained drop below 106.30 are not high. Meanwhile, USD could continue to trade in a choppy manner over the next few days and only a move back above 110.00 (‘strong resistance’ level was at 110.45 last Friday) would indicate the current weakness has stabilized.”