USD/JPY outlook shifted to bearish from neutral – UOB

The stance on the pair has now shifted to bearish and the door is open for a potential test of 107.60, according to FX Strategists at UOB Group.

Key Quotes

24-hour view: “We highlighted yesterday that a “break of the critical 110.00 support could lead to acceleration lower to 109.55”. The rapid decline exceeded our expectation as USD hit a low of 108.95. While the sharp drop is severely ‘over-extended’, it is too early to expect a sustained recovery. USD is more likely to ‘lick its wounds’ and trade sideways at these lower levels. Expected range for today, 108.90/109.80”.

Next 1-3 weeks: “we highlighted the importance of the key 110.00 level (weekly trend-line support) and held the view that a NY closing below this level would indicate that USD has moved into a bearish phase with an immediate ‘target’ of 109.10. The ‘target’ was exceeded in a blink as USD plummeted to a low of 108.95 during NY hours. The outlook for USD is clearly bearish now and from here, we are aiming for 108.50 first but there appears to be scope for further extension towards the next major mid to long-term support at 107.30 (low in 2017 which coincides with another rising weekly trend-line). In order to maintain the current strong downward momentum, any rebound should not move back above the ‘stop-loss’ at 110.30. On a shorter-term note, 109.80 is already a strong level”.