A drop to the 104.70 region in USD/JPY should not be ruled out in the next weeks, noted FX Strategists at UOB Group.
24-hour view: “Last Friday, we held the view that USD ‘could edge higher but chance for a break of the solid resistance at 107.00 is not high’. While our view was not wrong as the advance in USD stopped at 106.94, the sudden and sharp sell-off that resulted in huge drop of -1.14% (NY close of 105.34) was clearly unexpected. The rapid decline appears to be running ahead of itself and while USD could weaken from here, any weakness is viewed as a lower trading range of 105.00/105.85. In other words, a sustained decline below 105.00 is not expected.”
Next 1-3 weeks: “We noted last Friday (28 Aug, spot at 106.60) that ‘momentum outlook still appears positive but USD has to close above 107.00 before further sustained advance can be expected’. USD subsequently rose to 106.94 before suddenly plunging to a low of 105.18 (closed at 105.34, -1.14%). The risk has shifted quickly to the downside and from here; USD could and test the solid support at 104.70. At this stage, the chance for a sustained decline below this level is not high (105.00 is already quite a strong level). On the upside, the ‘strong resistance’ at 106.30 is likely strong enough to hold, at least for these few days.”
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