USD/JPY: Further losses likely below 109.30 – UOB

A close below 109.30 could open the door to a deeper pullback in USD/JPY in the short-term horizon, noted FX Strategists at UOB Group.

Key Quotes

24-hour view: “While we expected USD to weaken yesterday, we were of the view that ‘oversold conditions suggest that any weakness is unlikely to break the major support at 109.30’. However, USD plummeted to 109.09 before rebounding. Conditions remain oversold and this coupled with the rapid bounce indicates that USD is unlikely to weaken further. For today, USD is more likely to consolidate and trade between 109.15 and 109.65.”

Next 1-3 weeks: “We highlighted yesterday (15 Sep, spot at 109.60) that ‘while the downside risk has increased, USD has to close below 109.30 before a sustained decline can be expected’. We added, ‘the next support is at 109.00’. We did not anticipate the quick drop to 109.09 and the subsequent rebound (USD closed at 109.36 in NY). There is no change in our view for now and while the risk is on the downside, we prefer to wait for a daily closing below 109.30 before adopting a more negative stance in USD. On the upside, a breach of 109.90 (‘strong resistance’ level was at 110.15 yesterday) would indicate that the downside risk has dissipated.”