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USD / JPY and yen crosses in the spotlight ahead of US elections

  • USD / JPY on the defensive as markets brace for a blue wave.
  • A surprise Trump victory could disrupt the currency market.
  • You may have to look for the value of the yen through the crosses.

The USD/JPY it is trading at 104.50 between a range of 104.43 and a high of 104.80, down 0.15% on the day until the moment the market prepares for the outcome of the US elections.

The US dollar is under pressure. The DXY is down 0.66% at the time of writing.

Markets have valued a broad Democratic Party victory, or the so-called “blue wave,” where a victory by former Vice President Joe Biden with Democrats taking both houses of Congress would indicate more stimulus is on the way.

The dollar has been on the defensive since markets began trading in a global economic recovery, a COVID vaccine as well as ongoing central bank and fiscal stimulus in anticipation of renewed reflationary momentum.

Reflation would be expected to weigh on Treasury prices, pushing yields and stocks higher and the US dollar lower.

Risks of an electoral surprise in the USA

However, the elections are not closed.

Returning to the polls in 2016, the Democratic candidate was ahead by a wide margin, but on election night the now president of the United States, Donald Trump, won.

The risk to markets on Election Night is that if the outcome is close and there is a chance that key states are being considered on the battlefield, a winner may not be called until much later in the day. the night.

Considering the coronavirus, extremely high turnout and a number of mailed ballots are anticipated to slow down the process, also significantly jeopardizing the chances of a legal challenge by either party.

Markets will have their eyes on Florida, which is the largest transition state, as it has been counting mail-in ballots for some time, as have North Carolina, Georgia, Iowa and Ohio.

Pennsylvania is another indecisive state that will count ballots received in the mail through Friday, increasing the prospects for ongoing legal challenges.

The value of the yen could be based on the crosses

For the yen, equities will be critical.

The risk of protests and riots is significantly high for this year’s elections, which does not bode well for risk appetite, especially during a contested election.

On the other hand, it could be argued that both the yen and the US dollar would appreciate if there is a controversial result or if Trump surprises again with a victory.

Short dollar positions have been on the rise and are therefore subject to a sharp change in a Trump victory or a contested election.

Therefore, the value of the yen might have to be sought at crosses in any scenario other than a market-friendly blue wave.

Eyes on the precarious EUR / USD daily chart

AUD / JPY, GBP / JPY and EUR / JPY could be the places where you will see the most action when considering an ultra-flexible Reserve Bank of Australia, Brexit and UK / EU COVID risks, as well as a EUR / USD technically vulnerable:

Credits: Forex Street

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