USD/JPY Fundamental Daily Forecast – Dollar Firms on Safe-Haven Bids

The Dollar/Yen advanced on Monday, bolstered by safe-haven bids amid surging coronavirus cases in Europe and the United States as well as the lack of progress on a U.S. fiscal stimulus package.

At 20:17 GMT, the USD/JPY is trading 104.849, up 0.146 or +0.14%.

Rising COVID-19 Cases Threaten Economic Recovery

Reuters reported on Monday that the United States, Russia and France set new daily records for new COVID-19 infections as a second wave swelled across parts of the Northern Hemisphere, forcing countries to impose new curbs. Spain announced a new state of emergency and Italy has ordered restaurants and bars to shut by 6 p.m.  In the U.S., the city of El Paso, Texas is asking citizens to stay at home for the next two weeks.

Little Hope Stimulus Deal is Close

On Monday, Washington policymakers offered little evidence that a fiscal stimulus deal was even close.

Optimism dimmed over the White House and Republicans striking a stimulus deal with Democrats before the election. White House economic advisor Larry Kudlow told CNBC’s “Squawk Box” on Monday that talks had slowed down, but noted they are still ongoing.

House Speaker Nancy Pelosi, D-Calif., said in a statement that she and the Democrats “have stressed the importance of testing, but the Administration has never followed through. The Republicans’ continued surrender to the virus – particularly amid the recent wave of cases – is official malfeasance.”

She also noted that a deal must be reached “as soon as possible,” but added that “we cannot accept the Administration’s refusal to crush the virus, honor our heroes or put money in the pockets of the American people.”

Elections Move to Forefront

There are two schools of thought about the election that could influence the direction of the USD/JPY over the near-term.

Some traders believe that a Joe Biden victory next week, especially if the Democrats win control of the Senate, would likely herald a large U.S. stimulus package and weaken the dollar as the spending improves market sentiment.

With Biden’s poll gap narrowing a bit over the weekend, the risk tone can become a bit more cautious as we get closer to next Tuesday’s election. This could raise interest in the U.S. Dollar. However, if the poll numbers start to widen toward the end of the week, the markets could turn risk positive, which would be bearish for the U.S. Dollar and bullish for the Japanese Yen.

There is still some uncertainty, however, with some investors raising doubts about expectations of a Democratic sweep of the U.S. Congress.

“One of the permutations is a Democratic win, but no control of the Senate. Is it a complete blue sweep or is it something else?,” said Amo Sahota, executive director at currency advisory firm Klarity FX in San Francisco. “If we don’t get a blue sweep, then the stimulus won’t be big enough.”

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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