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The USD/JPY markets balanced the competing risk-off trades and the pair ended last week in almost the same place as it started. Pandemic fears resurface but the US election is set to order markets this week while technical buffering remains weak and distant, FXStreet’s Analyst Joseph Trevisani reports.

Key quotes

“The attraction of the Japanese yen as an alternative to the US dollar safety-trade, the long-running descending channel and the scarce and weak supporting lines make the case for a lower USD/JPY. Countering these is general market interest in the US dollar haven and the much better American economic data.”

“The risk-off trade is a transitory phenomenon, it ebbs and flows with the novelty of news. For the USD/JPY, the dueling safety trades of the yen and the dollar effectively neutralize each other. In comparison, the dollar rose in every other major currency pair this week except the USD/JPY.”

“Technically the support at 104.00 is strong but beneath this level the only near-term reference is from the March panic lows which were too brief for meaningful reference. Prior to that there was a brief drop to near 104.50 in March 2018. The USD/JPY has not spent any time below 104.00 since the second half of 2016 and levels from that long ago are indicative at best.”

“The US electorate is unusually volatile this year and the election and its aftermath will dominate news and markets. The reaction to the election may be the most important development. The polls have been tightening and the late run looks much like the 2016 vote. If Trump wins the potential for violent protests in many cities seems high. For markets the question is will US civil unrest, if it happens, play to the dollar’s safety status as the COVID-19 cases have or will traders flee to the euro, yen and farther shores? The surpassing rarity of political violence in the US makes the prognosis an unknown of the highest order.”