USD/JPY: Further USD declines are not ruled out - UOB Group

Further US Dollar (USD) declines are not ruled out, but deeply oversold conditions and tentative slowing of downward momentum could first lead to consolidation, UOB Group's FX analysts Quek Ser Leang and Peter Chia note.

Deeply oversold conditions may lead to consolidation

24-HOUR VIEW: "While we indicated yesterday that USD 'could weaken further', we pointed out that 'given the deeply oversold conditions, any decline is unlikely to break below 143.00.' Our directional call was not wrong, but USD dropped more than expected, reaching 142.78. However, the decline was short-lived, with USD rebounding to close 0.24% higher at 144.01. The rebound amid still oversold conditions suggests the downside risk has likely faded for now. Today, USD is likely to consolidate in a range between 143.40 and 144.70."

1-3 WEEKS VIEW: "We revised our USD view to negative two days ago (21 May, spot at 144.40). After USD swiftly exceeded our technical objectives, we indicated yesterday (22 May, spot at 143.90) that 'despite being deeply oversold, downward momentum continues to indicate downside risk toward 143.00.' Once again, USD quickly exceeded our target, dropping to 142.78 before rebounding to snap its seven-day losing streak with a 0.24% gain (144.01). While further declines remain possible, deeply oversold conditions and tentative slowing of downward momentum could first lead to consolidation. That said, yesterday's low near 142.80, is now acting as a strong support level. On the upside, a break above 145.05 (no change in 'strong resistance' level) would indicate a broader and longer consolidation phase."