USD/JPY risks a pullback to the 128.00 area – UOB

Further downside could force USD/JPY to grind lower and revisit the 128.00 region in the near term, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group.

Key Quotes

24-hour view: “While we expected USD to head lower yesterday, we were of the view that ‘a sustained decline below 131.30 appears unlikely’. We underestimated the downward momentum as USD nose-dived to a low of 128.86 before closing on a weak note at 129.22 (-2.45%). While the outsized decline appears to be overdone, the USD weakness is not showing any signs of stabilizing. In other words, USD could continue to weaken even though it remains to be seen if it has enough momentum to carry it lower to the next support at 128.00. Resistance is at 129.70, but only a breach of 130.50 would indicate the weakness in USD has stabilized.”

Next 1-3 weeks: “Our most recent narrative was from Monday (09 Jan, spot at 132.10) where we highlighted that USD is likely to trade within a broad range of 130.50 and 134.50. The sharp sell-off yesterday that sent it plunging below 130.50 (low of 128.86) came as a surprise. While the price actions suggest the risk for USD has shifted to the downside, the pace of any further decline is likely to be slower. Support is at 128.00, followed by 126.35. On the upside, a breach of 131.30 would indicate that the current increase in downward momentum has subsided.”