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  • USD/JPY lost its traction after leaping above 105.00.
  • US Dollar Index pulls away from daily highs, stays in the positive territory.
  • US election uncertainty is likely to cause volatility to remain high.

The USD/JPY advanced to its highest level since October 21st at 105.35 earlier in the day but reversed its direction and erased the majority of its daily gains. As of writing, the pair was still up 0.2% on the day at 104.66.

USD capitalizes on US election uncertainty

The USD’s market valuation remains the primary driver of USD/JPY’s movements on Wednesday. With early election results from the US revealing that a blue wave will be unlikely, safe-haven flows boosted the demand for the greenback. The US Dollar Index (DXY), which lost 0.75% on Tuesday, surged to its highest level in more than a month at 94.30.

However, after former Vice President Joe Biden took the lead in Arizona, the USD lost its traction and the DXY was last seen gaining 0.42% on the day at 93.73.

Reviewing the early election results, “we think market conditions will stay choppy as lingering uncertainty makes it difficult to make a strong directional commitment. Ahead of that, we expect the USD to track investor sentiment from here,” said TD Securities analysts. “We note that while the S&P 500 e-mini futures remain elevated, the European equivalents have turned lower ahead of the cash open. If continued, this could see the USD remain firm during the early hours of the London trading session.”

2020 Elections: Uncertainty to weigh on markets and send flows to the US dollar – TDS.

In the meantime, the S&P 500 futures are posting modest daily gains, suggesting that market sentiment has improved modestly. Nevertheless, the risk perception could change rapidly with the outcome of the election becoming more clear later in the day.

Technical levels to watch for