In light of the recent price action, the UOB Group's FX strategists suggested USD/JPY is once again facing further consolidation.
- "24-hour view: We highlighted yesterday “the improved underlying tone could lead to USD testing the next resistance at 108.30”. We added, “a break of last month’s 108.47 peak is unlikely”. While our expectation was not wrong as USD subsequently touched 108.46, the sharp and swift sell-off from the high was unexpected. The decline appears to be running ahead of itself but with no sign of stabilization, USD could extend its decline to 107.50 (next support is at 107.25). Resistance is at 107.95 but only a move above 108.15 would indicate the current weakness has stabilized.
- Next 1-3 weeks: We indicated yesterday (01 Oct, spot at 108.10) that USD “could test the major 108.50 level” and added, “the prospect for a sustained rise above this level is not high”. While our view was not wrong, the rapid manner by which USD rose to 108.46 and the subsequent sharp sell-off was not exactly expected. Upward pressure has waned quickly and from here, USD has likely moved back into a consolidation phase. In other words, USD is likely to trade sideways and only a clear break out of the expected 107.00/108.50 range would suggest the start of a sustained directional move."