The USD/JPY pair fell during the session on Monday as the markets essentially did very little before the US Presidential elections. This by far is the most interesting pair for us over the next 24 hours as it will have the most direct correlation to the election results. Simply put, this is a battle between two central banks that are hell-bent on killing their own currencies. So far, the Americans have been “winning”, and as such traders continued to buy the Yen.
However, we have two distinctly different candidates in the United States. We have President Barack Obama, who is well-known as a big spender. He will more than likely continue the policies that the US government has been going through for the last 12 years, which of course means more borrowing. More borrowing will mean more printing of currency, as the Federal Reserve continues to be the largest buyer of US Treasury Bonds. With this being said, the dollar should come absolutely undone if Pres. Obama ends up winning reelection.
On the other side of the aisle, we have Gov. Romney. Gov. Romney is known as someone who is very against the Federal Reserve Chairman and his handling of the crisis. Ben Bernanke has been pumping money into the system hand over fist since the housing meltdown, and as a result we have a lot of excess liquidity in the marketplace. Romney on the other hand believes that it is time to stop, and has already stated he would not be keeping the Chairman on beyond the present term that he is serving. This term ends at the end of 2013, and as such we should see a continued gain for the US dollar.
If this happens, this pair will more than likely find massive support at 80, and it continue to skyrocket higher as we would essentially have one of the central banks pulling out of the “race to the bottom” in the relatively near future. Because of this, we will place this trade based upon the election results when they come in. It is expected to be a fairly tight election, so this could actually end up being Wednesday or Thursday before the trader is placed.
Written by FX Empire