In the view of Economist Lee Sue Ann and Markets Strategist Quek Ser Leang at UOB Group, USD/JPY risks sustained pullbacks on a break below 138.50.
Key Quotes
24-hour view: The spike in volatility in USD came as a surprise. After soaring to a high of 141.31 in NY trade, USD reversed and nose-dived to a low of 138.76. The sharp decline appears to be overdone, but there is a chance for USD to test the critical support at 138.50. At this stage, it is unclear if USD can maintain a foothold below this level. Resistance is at 140.00, followed by 140.60.
Next 1-3 Weeks: Yesterday (July 27, spot at 140.40), we noted that the recent upward pressure has waned. We expected the USD to consolidate and trade in the 138.50/141.95 range. In NY trade, the USD rose to 141.31 before selling off sharply at 138.76. Momentum is starting to build again, but the USD must clearly break below the critical support at 138.50 before further weakness is likely. The possibility of a clear USD break below 138.50 remains intact as long as it remains below 141.30 in the next few days. Looking ahead, the next level to watch below 138.50 is the July low near 137.25.
