Further decline in USD/JPY now appears on the cards below the 129.60 level, comment Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group. We highlighted last Friday that ‘there is potential for USD to break 130.15’ but we were of the view that ‘the next support at 129.80 is unlikely to come under threat’. The anticipated USD weakness exceeded our expectations as USD dropped to 129.67 and then rebounded strongly to end the day little changed at 130.69 (-0.09%).
The strong bounce in oversold conditions suggests that the downside risk has faded. Today, USD is likely to consolidate, expected to be in a range of 130.20/131.40.
Last Friday (24 Mar, spot at 130.65), we stated that ‘there is room for USD to weaken further though there are a couple of rather solid support levels at 130.15 and 129.80’. We did not expect the sharp but short-lived decline as USD dropped to 129.67 before rebounding strongly. Further USD weakness is not ruled out but USD has to break and stay below 129.60 before further decline is likely. The likelihood of USD breaking clearly below 129.60 will remain intact as long as it does not move above 132.00 (‘strong resistance’ level previously at 132.50).
