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  • USD/JPY drops and pops to close the opening bearish gap.
  • Investors fear a contested US election and have a watchful eye on other key events.

USD/JPY was sold in the open as a flight to safely supports the yen following a poor end to the month on Wall Street as US investors get braced for a potential roller-coaster week. 

At the time of writing, USD/JPY is trading at 104.61 between a range of 104.49 from a high of 104.62 as the price recovers towards the close of the opening gap.

On Friday, US equity markets had their worst week since mid-summer.

The S&P 500 closed 1.2% lower, the Dow down 0.6%, and Nasdaq down 1.5% which had followed a poor session for European equities as well. The  Euro Stoxx 50 was off 0.1% and the FTSE 100 was down 0.1%.

There are concerns that this year’s US elections will be contested by the incumbent US President Donald Trump.

Job Biden is expected to win and a landslide victory would seal the deal for equity markets in anticipation of large scale stimulus. 

However, with Trump catching up in the polls, there are even greater prospects for a close result which could invoke him to contest the result.

In doing so, it would more than likely send markets into a tailspin in anticipation of a period of great uncertainty.

More on this here: S&P 500 Weekly Forecast: Investor jitters into US Election Day and what it means for stocks

Risk-off was seen throughout financial and commodity markets on Friday with Treasuries selling off as well, with 10-year yields rising another 5bps to 0.87% on the rout in stocks.

The price if oil was also continuing to bleed out, with WTI down 1.1% to USD35.8/bbl while the coronavirus concerns continue to weigh. 

Looking ahead

Looking ahead for the week, besides the US elections on Tuesday, the Federal Reserve meeting will follow the very next day. 

”We don’t expect any new policy announcements after next week’s meeting, and changes to the wording of the statement are likely to be minimal, but potential changes to the QE program and associated guidance will likely be discussed,” analysts at TD Securities explained.

”We expect the Fed to make QE more accommodative by increasing the average maturity of purchases, but not yet.’

The US jobs market will also be a key event but will play second fiddle to the US elections. 

USD/JPY levels