The US elections loom large over financial markets, with results likely to be known late Tuesday or early Wednesday in the US unless one or more key states are very close.
* If the risk environment remains stable in the aftermath of the vote and assuming the US October employment report confirms jobs growth close to our 180k estimate, markets are likely to become increasingly confident that the Fed will deliver an additional rate hike, allowing the USD and US front-end rates to trend higher. We target USDJPY at 108 by the year end, largely driven by Fed policy.
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**In a scenario where the risk environment deteriorates in the aftermath of the vote, current levels of Fed pricing would be challenged and the USD would likely retreat vs. the EUR, JPY and CHF while gaining ground vs. risk sensitive currencies.