USD/JPY Fundamental Forecast – November 8, 2016

The U.S. Dollar soared versus the Japanese Yen on Monday on greater demand for higher-yielding assets. The catalyst behind the rally was the news that the FBI had cleared U.S. Democratic presidential candidate Hillary Clinton of any possibility of criminal charges in the latest probe of her emails while secretary of state.

In a letter to Congress on Sunday, Federal Bureau of Investigation Director James Comey said that the agency’s review of newly discovered emails did not find anything to warrant any criminal charges against Clinton in the FBI’s probe of her use of a private email server.

The bullish news drove up demand for higher-yielding assets, fueling rallies in the global stock markets. Demand for the U.S. Dollar also picked up as investors dumped the safe-haven Japanese Yen.

The USD/JPY closed at 104.474, up 1.411 or 1.37%.

Forecast

Look for the USD/JPY to continue to rally on Tuesday as investors increase their bullish bets for a Clinton win ahead of the U.S. presidential election. Currently, the polls show Clinton has about a 90 percent chance of defeating Republican Donald Trump in the race for the White House.

With most votes expecting Clinton to be the next U.S. President, demand for risky assets is expected to continue on Tuesday.

The Japanese Yen is also being treated as a funding currency because of the low interest rates being offered by Japanese banks.

The fresh news on Monday also drove up U.S. Treasury yields which helped widen the spread between the U.S. 30-Year Bond and Japanese Government Bonds. This also helped make the U.S. Dollar a more attractive investors.

A win by Clinton will be bullish for the USD/JPY. If the rally continues then 105.526 becomes the next likely upside target. Remember this is a speculative market so we could still see a two-sided trade even if Clinton wins. There are going to be longer-term investors taking positions and short-term traders looking to take profits after the rally. So a win by Clinton doesn’t mean you can just close your eyes and let the market go.

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