USD/JPY: A move to 112.20 runs out of steam – UOB

In light of the recent price action, the potential advance to 112.20 in USD/JPY appears somewhat deflated for the time being, suggested FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that USD ‘could test 112.20 first before the risk of a pullback would increase’. USD subsequently rose to 112.07 before staging a surprisingly sharp pullback (low of 111.22). While the rapid pullback has room to extend, a break of the strong support at 111.10 appears unlikely (next support is at 110.80). Resistance is at 111.60 followed by 111.85.”

Next 1-3 weeks: “We have expected USD to strengthen since last Friday (24 Sep, spot at 110.30). As USD surged over the past week, we noted yesterday (30 Sep, spot at 111.90) that ‘further USD strength is not ruled out but deeply overbought conditions indicate that the pace of any advance is likely to be slower’. We did not anticipate the sharp pullback to a low of 111.22 during NY session. While our ‘strong support’ level at 111.10 is still intact, the rapid loss in momentum suggests that the next resistance at 112.20 may not come into the picture this time round. In order to rejuvenate the flagging momentum, USD has to move and stay above 111.85 within these 1 to 2 days or a break of 111.10 would not be surprising.”