USD/JPY could see its upside bias mitigated on a breach of the 146.85 level, suggest UOB Group’s Economist Lee Sue Ann and Markets Strategist Quek Ser Leang.
Key Quotes
24-hour view: Last Friday, USD rose to a high of 147.96. Yesterday, we indicated that “despite the advance, upward momentum has not improved by much”, and we expected it to grind higher. Instead of grinding higher, USD traded sideways in a relatively narrow range between 147.54 and 147.87. The price action is likely part of a consolidation phase. Today, USD is likely to trade in a range, probably between 147.35 and 147.90.
Next 1-3 weeks: Our update from yesterday (18 Sep, spot at 147.80) is still valid. As highlighted, upward momentum has increased slightly, and USD could edge higher. At this stage, the likelihood of a sustained rise above this level is not high. On the downside, if USD breaks 146.85 (no change in ‘strong support’ level from yesterday) would indicate that the mild upward pressure has eased.
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Pairing USD/JPY is continuing to retain its gains, despite the slight alleviation of its upward momentum recently. According to UOB’s latest research, the pair hit a notable resistance point at 146.85.
UOB’s research highlighted signs of a possible downward correction. The pair had recently broken above the very important 145.25 horizontal resistance line, which in turn indicated a stronger bullish outlook. While the pair has managed to stay above this resistance line, the upward momentum looks to slowly be easing, as the level of 146.85 is proving to be a significant obstacle.
UOB have suggested that the next few trading sessions will be essential in determining the near-term outlook for the pair. They predict that in order for the upward trend to remain in full effect, a clear break and daily close above the aforementioned 146.85 level will be necessary. If USD/JPY fails to clear the resistance point, UOB anticipate that the pair might fall back to find support at the 144.85.
UOB also noted that any news or data releases from Japan or the USA could have an impact on the pair’s momentum, as the two countries are the two major players in the market.
Overall, UOB forecasts an uncertain outlook for the pair in the coming days. A successful break above 146.85 would confirm the continuation of the current bullish trend, while conversely, failure to traverse the resistance level could cause a downward correction. Investors, and indeed traders, in the pair should keep an eye on any Japanese or US news, although for the time being, USD/JPY looks to continue to stay above the 145.25 support level.
