Yen bulls have the edge
Yen bulls are gathering momentum, no matter the outcome of the U.S. elections.
Election risks are significant. Breakevens for overnight options suggest USD/JPY can easily test 150 or 154 once voting outcomes become clearer. Conventional thinking suggests a Kamala Harris victory is negative for USD/JPY and a Donald Trump win positive.
That said, there is a slight bearish bias in option activity and pricing, with some traders seeing USD/JPY slumping below 150 should the “Trump trade” and yen shorts unravel. Turnover in USD/JPY options with strikes set below current spot are outpacing those with higher strikes about 3 to 1, DTCC data shows. Part of the turnover is likely hedging short yen positions built up since USD/JPY topped 150.
But there are other potentially yen-positive factors at play outside the election outcome. First, the Fed will likely deliver a 25 basis point cut this week. Second, a post-election drop in volatility should buoy U.S. equites, weighing on the dollar. Third, political uncertainty in Japan may ease if a new ruling coalition is formed prior to Monday’s special session of Parliament. Finally, odds of a December Bank of Japan rate hike are edging up.
Technically, a USD/JPY close below its 200-DMA of 151.60 would open up a test of the key 150 psychological level. A further drop below the 149.09 Oct. 21 low would put the focus on the pair's thinning Ichimoku cloud.
For more click on FXBUZ
yen chart https://tmsnrt.rs/3YztmIW
(Robert Fullem is a Reuters market analyst. The views expressed are his own.)
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