A drop below 126.10 should be indicative that rally in USD/JPY could lose some momentum, noted FX Strategists at UOB Group Quek Ser Leang and Lee Sue Ann.

Key Quotes

24-hour view: “Our expectations for USD to ‘trade between 126.00 and 126.80’ were incorrect as it rose to 127.00 before extending its advance during early Asian hours. Conditions are overbought but USD could advance further to 127.50. That said, the next resistance at 128.00 is likely out of reach for now. Support 126.85 followed by 126.60.”

Next 1-3 weeks: “We highlighted yesterday that while conditions are deeply overbought, the risk for USD is still on the upside. We added, ‘there is room for the rally to extend to 127.00’. We did not quite expect the rapid manner of the advance as USD rose to 127.00 during NY session before extending its gains. Further USD strength appears likely, the next levels to watch are at 127.50 and 128.00. Overall, only a breach of 126.10 (‘strong support’ level was at 125.60 yesterday) would indicate that the rally in USD is ready to take a breather.”