USD/JPY: A drop below 112.70 looks unlikely – UOB

A break below the 112.70 region in USD/JPY appears out of favour for the time being, commented FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted last Friday that ‘the downside risk has increased but 114.60 is expected to offer solid support’. The ease by which USD sliced through 114.60 and nose-dived to 113.03 came as a surprise. The sharp bounce from the low amid oversold conditions indicate that USD is unlikely to weaken further. For today, USD is more likely to consolidate and trade between 113.20 and 114.10.”

Next 1-3 weeks: “While we noted last Friday (26 Nov, spot at 114.95) that ‘the sudden and sharp loss in momentum indicates that the odds for further USD strength have diminished considerably’, we did not expect the sharp sell-off that sent USD plunging by a whopping -1.77% (NY close of 113.31), its largest 1-day loss since March last year. The sharp and rapid drop appears to be overdone and while USD could weaken further, the odds for a sustained drop below 112.70 are not high for now. On the upside, the ‘strong resistance’ level (currently at 114.65) is likely to cap any recovery, at least within these few days.”