USD/JPY risks a drop below 127.50 as long as it trades below the 130.10 level, noted FX Strategists at UOB Group Lee Sue Ann and Quek Ser Leang.

Key Quotes

24-hour view: “While we expected USD to weaken yesterday, we were of the view that ‘any weakness is expected to encounter strong support at 129.20’. The anticipated weakness exceeded our expectations by a wide margin as USD cracked 129.20 and nose-dived to 127.50 before snapping back up. The outsized decline appears to be overdone and USD is unlikely to weaken further. For today, we expect USD to trade between 128.00 and 129.50.”

Next 1-3 weeks: “On Tuesday (10 May, spot at 130.10), we highlighted that USD appears to have moved into consolidation phase and is likely to trade between 128.40 and 131.00. Yesterday (12 May), USD cracked 128.40 and plunged to 127.50 before rebounding strongly. While the price actions suggest USD could stage a deeper pullback, oversold shorter-term conditions could lead to USD trading above 127.50 for a couple of days first. Overall, only a breach of 130.10 would indicate that USD is not ready to move below 127.50. Looking ahead, support levels below 127.50 are at 127.00 and 126.00.”