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  • USD/JPY added to the overnight heavy losses and remained depressed for the second straight day.
  • The prevalent risk-off mood underpinned the safe-haven JPY and was seen exerting some pressure.
  • A modest pickup in the USD demand might help limit the downside amid the US political uncertainty.

The USD/JPY pair retreated around 35 pips from Asian session swing highs and dropped to over one-month lows, around the 104.20 region in the last hour.

The pair extended this week’s retracement slide from levels just above the key 105.00 psychological mark and witnessed some strong follow-through selling for the second consecutive session on Tuesday. The downward trajectory was exclusively sponsored by the prevalent risk-off mood, which tends to undermine demand for the safe-haven Japanese yen.

Growing worries about the potential impact of the ever-increasing coronavirus cases continued weighing on investors’ sentiment. This, along with the lack of progress in the US fiscal stimulus plans further dampened the market mood. This was evident from a weaker trading sentiment around the equity markets, which drove flows towards traditional safe-haven assets.

Meanwhile, concerns that renewed lockdown measures to curb the second wave of COVID-19 infections could prove detrimental for the already fragile global economic recovery extended some support to the US dollar’s reserve currency status. This, in turn, might turn out to be the only factor that might help limit any further losses for the USD/JPY pair.

Hence, any subsequent fall is more likely to attract some buying near September monthly swing lows, around the 104.00 round-figure mark. That said, the uncertain US political situation might hold the USD bulls from placing any aggressive bets and limit any meaningful upside for the USD/JPY pair amid absent relevant market-moving economic releases.

It is worth recalling that incoming polls have been indicating that Democrat candidate Joe Biden is ahead of incumbent President Donald Trump. However, investors remain wary of predicting the actual outcome as the gap is narrow in certain key swing states.

Technical levels to watch