USD/JPY faces a potential drop to 107.70/50 – UOB

Spot remains under pressure and could extend the decline to the 107.70/50 band, suggested FX Strategists at UOB Group.

Next 1-3 weeks: “We indicated last Friday (31 May, spot at 109.40) that “looking ahead, the current consolidation is expected to be resolved by a downside break but 109.00 is a solid support and this level may hold for a while more. We added, “if USD were to register a daily closing below this level, it would indicate the start of a sustained decline to 108.45 (and possibly lower)”. However, the subsequent price action came as a surprise as it played out in a ‘fast-forward’ manner as USD sliced through 109.00 and plunged to 108.26 (before closing right at the low for a loss of -1.22%, the largest 1-day decline in 2 years). In other words, USD has moved into a ‘negative phase’ even though the decline appears to be running ahead of itself. That said, there is scope for the weakness to extend to 107.70 (there is another strong support at 107.50). On the upside, only a move above 109.30 would indicate that the current weakness has stabilized. Shorter-term, 109.00 is already a formidable level”.