Weakness in USD/JPY still seen as corrective – UOB

FX Strategists at UOB Group remains neutral on spot and noted it could slip back and test the mid-111.00s in the near term.

Key Quotes

24-hour view: “We highlighted yesterday, “a break of 112.00 would not be surprising but the next support at 111.50 is likely out of reach (minor support is at 111.80)”. USD subsequently staged a brief dip and touched a low of 111.83 before recovering quickly. Despite the rebound, the underlying remains on the soft side and it is too early to expect a sustained recovery. USD is more likely to consolidate and trade sideways, likely between 111.80 and 112.50”.

Next 1-3 weeks: “When we shifted from a bullish to neutral stance on Tuesday (09 Oct, spot at 113.10), we held the view that USD has entered a correction phase. We expected USD to trade with a ‘negative bias’ within a 112.50/114.00 range and highlighted, “looking further ahead, there is risk of a deeper pull-back to 112.00 but the odds for such a move are not high for now”. The large drop of -0.59% yesterday came as a surprise as USD dropped to a low of 112.23 before extending its decline after NY close (low of 112.06 at the time of writing). The rapid improvement in downward momentum suggests USD would remain under pressure in the coming days. At this stage, we still view the USD weakness as a ‘correction’ and not the start of a major bearish reversal. That said, there is scope for USD to weaken further to 111.50 in the coming days. On the upside, only a break above the ‘key resistance’ at 113.00 would indicate that the current weak phase in USD has stabilized”.