USD/JPY faces a potential move to 109.20 – UOB

Further downside could drag USD/JPY to the 109.20 level in the next weeks, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “Our expectation for USD to weaken yesterday was not wrong but we expected it to ‘edge lower’ and that ‘a clear break of 110.30 is unlikely’. We did not anticipate the manner by which USD nose-dived to 109.52 and the subsequent weak daily loss of -0.78% (109.79). The -0.78% loss marks the biggest 1-day decline since March 2020. While the outsized drop appears to be overdone, there is room for USD to dip below 109.50. In view of the oversold conditions, it may not be able to maintain a foothold below this level and the next support at 109.20 is unlikely to come into the picture. Resistance is at 110.10 but only a break of 110.30 would indicate that the current weakness has stabilized.”

Next 1-3 weeks: “We first detected the weakness in USD on Wednesday (07 Jul, spot at 110.55) where we indicated that USD ‘is under mild downward pressure and could grind lower to 110.05’. We did not anticipate the sudden and sharp downward acceleration as USD sliced through 110.05 and plunged to 109.52 yesterday (08 Jul). In view of the impulsive downward momentum, further USD weakness would not be surprising. That said, oversold conditions could slow the pace of any further decline. From here, a clear break of 109.50 would open the way for a move lower to 109.20. The downward pressure is deemed intact as long as at USD does not move above 110.55 (‘strong resistance’ level was at 111.15 previously).”