The US election season is getting into high-gear with one presidential debate behind us and two more to go. And markets are beginning to watch. The team at BTMU explains the risks in USD/JPY:
Here is their view, courtesy of eFXnews:
The yen has weakened modestly in the Asian trading session following yesterday’s first US Presidential debate. Several snap opinion polls have signalled that Hillary Clinton was judged to have won the debate triggering some initial relief amongst investors which has helped to boost high yielding and emerging market currencies, in particular, the Mexican peso. A snap poll of 1,000 debate watchers from Public Policy Polling found that 51 percent thought that Hillary Clinton had won compared to 40 percent who thought that Donald Trump had won. The latest odds from the betting markets have also shifted to price in a higher probability of Hillary Clinton becoming President.
Market participants will now be watching the incoming polls closely in the week ahead to see if the first Presidential debate has had a material impact on the publics’ voting preferences. Recent polls have been showing a narrowing of Hillary Clinton’s lead over Donald Trump ahead of the first debate which has contributed to the financial market’s increased sensitivity to the upcoming Presidential election.
We continue to believe that the US dollar is vulnerable to the downside particularly against the yen in the run-up to the election. Investor unease over Donald Trump potentially becoming President could begin to weigh more heavily on USD/JPY reflecting heightened concern over a shift to more protectionist trade policy, and the potential negative impact that increased policy uncertainty could have the US economy which would likely prompt the Fed to delay resuming rate hikes until next year.
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