USD / JPY returns initial gains and retraces near 104.50 level

• USD / JPY loses its upside traction after jumping above 105.00.
• The US Dollar DXY Index is back from daily highs and remains in positive territory.
• Electoral uncertainty in the United States is likely to keep volatility high.

The USD / JPY has risen to its highest level since October 21 at 105.35 earlier in the day, but has turned its direction and returned its initial gains. At the time of writing, the pair is largely unchanged on the day around the 104.58 level.

The USD capitalizes on electoral uncertainty in the US.

USD price action remains the main driver of USD / JPY moves on Wednesday. With the anticipated results of the US elections revealing that a “blue wave” unlikely, safe haven cash flows boosted demand for the US dollar. The US dollar DXY index, which lost 0.75% on Tuesday, has risen to its highest level in more than a month at 94.30.

However, after the former vice president Joe Biden has taken the lead in Arizona, the USD has lost its traction. At the time of writing, the DXY index is gaining 0.42% on the day at 93.73.

In reviewing the anticipated election results, “we believe that market conditions will remain choppy as persistent uncertainty makes it difficult to make a strong directional commitment. Before that, we expect the USD to follow investor sentiment, “TD Securities analysts said.” We note that while S&P 500 futures remain high, European equivalents have turned lower before the opening of the market. If it continues, this could make the USD firm during the first hours of the London trading session. ”

Meanwhile, S&P 500 futures are posting modest daily gains, suggesting that market sentiment has improved modestly. However, the perception of risk could change rapidly with a clearer election outcome later in the day.