UBS analysts recently provided their insights on the USD/JPY currency pair, highlighting a significant drop to an intra-day low of 140.7 earlier in the week. The decline was attributed to a combination of falling US yields and the pair breaking below the critical technical support level of 141.7, triggering stop-loss selling.
UBS forecasts for the USD/JPY are bullish, with targets set at 147 by December 24, 2023, 143 by March 25, 2024, 140 by June 25, 2024, and 138 by September 25, 2024. The analysts believe that the current trading level is slightly undervalued based on 10-year real yield differentials, suggesting that the currency pair should be closer to 143.
Despite the short-term oversold conditions, UBS anticipates a bounce in the USD/JPY to the 143-147 range in the near future. The firm argues that recent reductions in US bond yields and aggressive market expectations of Federal Reserve rate cuts have created an opportunity for a short-term recovery.
However, UBS maintains a medium-term bearish outlook on the USD/JPY and advises investors to sell on rallies. The firm also warns of potential near-term risks, including a disappointing US retail sales report on September 17, 2024, and political changes in Japan on September 27, 2024.
InvestingPro Insights
Additional data from InvestingPro supports UBS's analysis, showing a downward trend in the US dollar index (DXY) over various timeframes. The weakening DXY could potentially support UBS's forecast of a short-term recovery in the USD/JPY pair. Investors are advised to monitor key economic indicators and geopolitical events that may influence market sentiment and currency valuations.
For more tips on currency trading strategies and market analysis, InvestingPro offers valuable insights to help investors make informed decisions in the forex market.
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Analysis:
The USD/JPY currency pair has experienced a recent decline due to falling US yields and technical support breaches. UBS analysts predict a short-term recovery in the pair, with targets set at 147 by December 2023. The current trading level is considered undervalued, and a bounce to the 143-147 range is expected. However, UBS maintains a medium-term bearish outlook and advises selling on rallies. Additional data from InvestingPro supports the analysis, showing a downward trend in the US dollar index that could impact the USD/JPY pair. Investors are urged to stay informed about key economic indicators and geopolitical events that may influence market sentiment and currency valuations.