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USD/JPY, DAX Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
November 5, 2024 9:15 AM

USD/JPY rises cautiously on US Election Day

  • Pair rises despite the USD struggling for direction against its major peers
  • A Trump win could lift the USD further
  • USD/JPY holds above the 200 SMA

USD/JPY is heading higher after yesterday's losses, despite the US dollar falling against its major peers as US investors focus on today’s presidential election.

Recent polls have seen the market reassessing the likelihood of a victory for Republican Donald Trump. In recent weeks, betting platforms had leaned in favour of a Trump win. His core policies on taxes, tariffs, and immigration are considered inflationary, leading to a rise in treasury yields and lifting the US dollar.

However, more recently, Democrat Kamala Harris has seen improving odds on election prediction sites and now has a slight lead on Predictit, even though the Polymarket continues to show Trump as the likely victor.

Harris is taking the lead in Iowa, a traditionally red-leaning state that has the market questioning Trump's chances of winning the White House race. However, this is still a coin-toss election that could go either way.

Should Trump win, the US dollar could extend gains. Meanwhile, a win by Harris, particularly with a Democratic Congress, could see the further unwinding of Trump trade fueling losses in the dollar. Any uncertainty surrounding the outcome, including a delay in over vote counting, could increase volatility this week.

Meanwhile, the yen is edging lower as the market considers when the Bank of Japan may hike interest rates again. The central bank left rates unchanged last week and may struggle to hike in December, given the country's ongoing political uncertainty.

However, January seems more likely amid optimism that the political situation will have calmed down and that the central bank will have had more data on consumption and wage growth to see whether they are holding up.

A cut in December could be more likely if the yen resumes its decline back towards the 160 level seen in July.

USD/JPY Forecast – technical analysis

USD/JPY extended its rebound from the 139.60 September low to resistance around 153.40, the 61.8% Fib level (of the 162 high, 139 low). The price trades caught between the 200 SMA on the downside and 153.40 on the upside.

Buyers will look to extend the uptrend above 153.40 towards 155 round number and 157.1, the 78.6% Fib level.

Sellers will look to take out the 200 SMA at 1551.50. Below here 150, the psychological level comes into play ahead of 148.20, the 38.2% fib level.

DAX muted in nervous trade ahead of the elections

  • A Trump win could hurt trade and hit the DAX
  • German manufacturing PMI improved in October to 43
  • DAX holds above 19k support

The DAX, along with its European peers, is edging higher in early trade amid a cautious mood ahead of the US elections and following downbeat earnings.

Stocks in Wall Street slipped overnight with the certainty translating over to European markets on Tuesday with US election risk in focus.

A Donald Trump win could potentially be bad news for global trade and stall the green shoots of economic recovery in Germany.

Yesterday, German manufacturing PMI figures provided some relief, with the PMI increasing to 43 in October, up from 40.6 in September. Employment, new orders, and activity contracted at a slower pace, raising optimism that the slowdown in the sector could be bottoming out.

In corporate news, Deutsche Post is falling after Q3 results missed expectations and as the company cut its profits outlook for 2024 by more than expected.

Looking ahead to the US session, ISM services PMI will be in focus and is expected to ease to 53.8 in October, down from 54.9. However, the data is likely to play second fiddle to presidential elections.

DAX forecast – technical analysis

The DAX broke out below its rising wedge, taking out support at 19300 before finding support at 19k. The price is consolidating just above 19k round number and the 50 SMA.

Sellers, supported by the RSI below 50 will look to take out 19k to expose the 100 SMA at 18650 and the 200 SMA at 18330.

Should the 19k and 50 SMA support hold, buyers will look to rise back above 19,300 toward 19670 and fresh record highs.

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