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  • USD/JPY extended the overnight slide from levels beyond the 105.00 mark, two-week tops.
  • The offered tone surrounding the USD was seen as a key factor exerting pressure on the pair.
  • The upbeat market mood undermined the safe-haven JPY and might help limit the downside.

The USD/JPY pair slipped below the 104.00 mark, or the lowest level since March 12 in the last hour, albeit quickly recovered few pips thereafter.

The pair extended the previous day’s sharp pullback from the 105.35 area, or two-week tops and witnessed some follow-through selling through the first half of the trading action on Thursday. The downtick was exclusively sponsored by the heavy offered tone surrounding the US dollar, which remained depressed on the back of the uncertainty US political situation.

Although Democrat candidate Joe Biden is edging closer to winning a nail-biting US presidential election, the battle remains undecided a day after polls closed on Wednesday. Adding to this, Republican incumbent President Donald Trump has pursued lawsuits and a recount in key swing states. The heightened uncertainty continued weighing on the greenback.

The USD was further pressured by the ongoing steep decline in the US Treasury bond yields. However, the upbeat market mood – as depicted by indications of yet another strong opening in the US equity markets – undermined the Japanese yen. This, in turn, extended some support to the USD/JPY pair and helped limit any deeper losses, at least for the time being.

Moreover, the fact that the uncertainty could prolong for days or even weeks might further hold investors from positioning for any big move. This was evident from a quick 20-25 pips recovery for the USD/JPY pair, which further makes it prudent to wait for some follow-through selling before placing any aggressive bearish bets.

Moving ahead, market participants now look forward to the release of Initial Weekly Jobless Claims data from the US. Later during the US session, the FOMC is scheduled to announce its monetary policy decision. This, along with the US political developments, will influence the USD price dynamics and provide some meaningful impetus to the USD/JPY pair.

Technical levels to watch