USDJPY dips as US Dollar falters ahead of US elections and FOMC, even on Japan's holiday

Cautious markets, downbeat NFP weigh on US Dollar

Despite a positive close for the US Dollar on Friday, weak Nonfarm Payrolls (NFP) and the market’s anxiety ahead of the US Presidential Elections put pressure on the Dollar Index (DXY) this week. The DXY ended with a Doji candlestick on the weekly format, interrupting its four-week uptrend. Geopolitical uncertainties from the Middle East and China, coupled with Japan’s holiday, are further pressuring the Dollar as the market braces for the Federal Open Market Committee's (FOMC) monetary policy meeting.

EURUSD extends recovery, GBPUSD stalls five-week downtrend

The US Dollar’s weakness and the European Central Bank's (ECB) resistance to significant rate cuts and some positive data from Europe and Germany have helped the EURUSD continue its rebound.

Meanwhile, the GBPUSD benefits from the Dollar's pullback but lacks momentum for recovery due to mixed signals about UK economic growth, especially following a disappointing British budget.

USDJPY bears cheer carry trade on Japan holiday

USDJPY begins the week with a downside gap after a five-week uptrend, driven by rising expectations for a US Federal Reserve (Fed) rate cut and diminishing worries about the Bank of Japan's (BoJ) ability to hike rates. Last week’s elections in Japan sparked concerns over a coalition government potentially slowing interest rate increases. However, Friday's lowest US Nonfarm Payrolls since 2020 and remarks from Japanese officials revived interest in the carry trade, prompting sellers to return to the Yen pair.

Antipodeans remain pressured despite intraday rebound

Although the US Dollar’s pullback allowed Australian, New Zealand and Canadian Dollars to pare recent losses, the recovery momentum lacks acceptance amid fears about China’s ability to regain economic transition even with heavy stimulus. During the weekend, the Dragon Nation eased restrictions over foreign investments in China equities. With this, AUDUSD and NZDUSD struggle to convince buyers after a five-week downtrend while the USDCAD pullback appears shallow following a month-old run-up. It should be noted that mostly downbeat data and dovish concerns about the Reserve Bank of Australia (RBA), Bank of Canada (BoC) and the Reserve Bank of New Zealand (RBNZ) also challenge the latest shift in the trends of Antipodeans.

While the US Dollar's pullback has helped the Australian, New Zealand, and Canadian Dollars recover some losses, the momentum remains weak amid concerns about China's economic recovery despite heavy stimulus. Over the weekend, China eased restrictions on foreign investments in its equities, but AUDUSD and NZDUSD struggle to attract buyers after a five-week decline. Meanwhile, the USDCAD's pullback seems limited following a month-long uptrend. Additionally, disappointing data and dovish outlooks for the Reserve Bank of Australia (RBA), Bank of Canada (BoC), and Reserve Bank of New Zealand (RBNZ) further complicate the recovery for these currencies.

Gold, Crude Oil reverse weekly loss

Gold and Crude Oil ended the week on a negative note as the market consolidated ahead of key events this week. Concerns over China's economic situation and a cautious sentiment before the US elections and the FOMC meeting weighed on commodity buyers. Gold halted a three-week uptrend but bounced back early Monday, while Crude Oil also faced weekly losses despite a more than 2.0% intraday rise.

Cryptocurrency recovery stalls

Anxiety ahead of the US Presidential Elections is weighing on cryptocurrency buyers, despite strong ETF inflows and on-chain data indicating continued interest. As a result, Bitcoin (BTCUSD) and Ethereum (ETHUSD) struggle to maintain recovery momentum, even after posting weekly gains.

Latest moves of key assets

• WTI Crude oil reverses the previous weekly losses by rising 2.10% intraday to $70.70 by the press time.
• Gold also snaps a two-day losing streak as bulls attack $2,740 at the latest.
• The USD Index marks the biggest daily loss since late August as it falls to 103.70 as we write.
• Wall Street closed with minor gains and the Asia-Pacific shares also edge higher. Further, European and British equities post mild gains during the initial trading hour.
• BTCUSD and ETHUSD both post mild intraday gains near $68,800 and $2,470 as we write.

US elections, Fed, BoE in the spotlight

Looking ahead, the US Presidential Elections are in focus, with Donald Trump and Kamala Harris neck-and-neck in the polls. Concerns that a Trump presidency could lead to a trade war with China, strained Middle Eastern relations, and challenges for Federal Reserve rate cuts are limiting US Dollar gains. If Trump wins, we might see an immediate pullback in the Dollar, although safe-haven buying and discussions of a US soft landing could support it later.

The US Federal Reserve is expected to cut rates by 0.25%, which could put further downward pressure on the US Dollar and boost Gold prices. However, any hawkish signals from the Fed could reverse recent Dollar losses.

The Bank of England is likely to reduce the rates by 25 basis points (bps), which could benefit GBPUSD sellers if the Dollar reverses.

That said, EURUSD could pare the recent gains amid a lack of major releases while USDJPY may continue the latest pullback amid fresh carry trades.

Additionally, this week’s final PMIs for October, the US ISM Services PMI, and the University of Michigan Consumer Sentiment Index will be key for momentum traders.

Predictions for Key Assets

• Recovery Expected: USDCAD, USDJPY, US Dollar, Silver
• Further Downside Likely: AUDUSD, NZDUSD, GBPUSD
• Mostly Sideways Expectations: BTCUSD, ETHUSD, Nasdaq, Gold, DJI30, USDCNH
• Slow & Gradual Fall Expected: DAX, FTSE 100, EURUSD, Crude Oil

May the trading luck be with you!