Recent up move in USD/JPY viewed as consolidative – UOB

FX Strategists at UOB Group noted the recent rebound in spot could be regarded as part of a consolidative phase.

Key Quotes

24-hour view: “We highlighted yesterday the recent consolidation phase “appears to be close to ending” and added USD “has to break out of the 110.65/111.35 range” in order to indicate the start of sustained directional move. USD initially dipped to a low of 110.76 post-BOJ announcement before rallying strongly to hit an overnight high of 111.95. While the rapid rise appears to be running ahead of itself, there is no sign of weakness just yet and there is scope for the current USD strength to extend to 112.10/15. At this stage, the next resistance at 112.50 is not expected to be challenged. On the downside, support is at 111.55 but only break of 111.30 would indicate that a short-term top is in place”.

Next 1-3 weeks: “Our recent expectation for USD to test the July’s low of 110.25 was wrong as it surged and took out the ‘key resistance’ at 111.80 (overnight high of 111.95). While the daily gain of +0.72% (NY close of 111.86) is relatively large, we are not convinced that USD has moved into a bullish phase. That said, USD has likely made a short-term low near 110.60 last week but any further strength from here is viewed as part of a 110.60/112.50 consolidation range and not the start of a sustained up-move”.