Can UPDATE lead to deadlocks in SQL SERVER?
Here, my assumption is that each query may scan rows in a different order which implies locks on rows (resources) will be taken in different orders.

The scenario, as you've outlined it, is unlikely under normal circumstances.  The exact same query being run concurrently will most likely use the same execution plan - which means they will both scan the index on TABLEX in the same order.  This situation would most likely lead to blocking rather than deadlocks between the two identical queries.
This assumes you have an index on Column2 that can be used to seek to the right spot, and then scan the subset of rows that need to be updated.
If you don't have an index on Column2, you could end up with a parallel scan of the index / table, and thus your updates could be in an indeterminate order.  Consider a plan like this:

The order of rows coming out of the clustered index scan will vary depending on how many cores are being used by the plan, and how busy each core is doing other work - as well as disk-related waits and things like that.  Unless the &quot;gather streams&quot; is order-preserving, the rows will be updated in a sort of random order.  This could lead to deadlocks as you've described.
In summary, the answer to your question depends on several factors, including the details of your table / indexes, isolation levels, server and database level settings, etc.  Hopefully this gives you some idea of what's involved though.