Market Outlook
November 4, 2026
Democrats Win the Midterm Elections; Dollar Selling Gives Way to Renewed Yen Weakness. US Employment and Services Data in Focus
Market Overview
The currency market has seen sharp swings today after reports that Democrats would win control of both chambers of Congress in the US midterm elections.
USD/JPY reached 158.74 early in the day, but dollar selling and yen buying gathered pace as the Democrats’ lead became clearer, sending the pair down to 157.41. It later recovered above 158 as equities steadied and yen buying eased.
EUR/USD and GBP/USD moved higher, while the dollar index fell to 101.245 at one point. During the London session, European currencies gained, while yen weakness also emerged, led by the yen crosses.
Today, broad dollar weakness and yen weakness have coincided, making it difficult to assess the overall market direction from USD/JPY alone. The focus now turns to US yields, equities, and economic data to see whether the post-election moves will continue.
US Midterm Elections and the Market’s Response
Markets are weighing the possibility that a Democratic victory could constrain the Trump administration’s fiscal expansion plans. The view that pressure to increase Treasury issuance and widen the fiscal deficit may ease has supported US Treasuries, lowered yields, and weighed on the dollar.
In equities, some investors are concerned about how Democrats might respond to AI investment, bringing AI-related stocks under pressure. For now, however, this reflects market speculation; no specific policies have been decided.
President Trump accepted the election results and signaled that he was open to working with Democrats. With the broad outcome now known, the immediate post-election volatility has eased for the moment.
The next question is whether markets will focus on the risk of policy gridlock or see limits on abrupt policy changes as a positive. For now, watch whether the decline in Treasury yields continues.
USD/JPY
USD/JPY fell to 157.41 before rebounding above 158. Buyers emerged during the decline, while selling has also tended to appear in the 158s, leaving the market with sharp two-way trading.
On the upside, the previous day’s high of 158.77 is the first key level to watch. The 200-day moving average is near 158.62, just below it. The question is whether the pair can break above the 158.62–158.77 area.
A clear move above 158.77 would bring 159.04 into view, followed by the 100-day moving average near 159.15. However, renewed yen weakness could also revive intervention concerns and cap the advance.
To the downside, the immediate focus is whether the pair can hold above the 21-day moving average near 157.94. If it falls below and struggles to recover, the 10-day moving average near 157.64 and today’s low of 157.41 come into focus.
A break below today’s low would strengthen the view that the rebound was only a temporary short-covering move, potentially opening the way for a test of 157.00.
Equities and the Yen
The Nikkei fell by more than 3,000 points at one stage, then recovered more than 2,000 points from its low. This rebound in equities has helped unwind yen buying and supported the recovery in USD/JPY.
Whether selling spreads again in European and US markets will be important.
If selling in AI-related stocks intensifies in the US, demand for the yen as a risk-reducing currency could return. Conversely, if markets absorb the election outcome and equities stabilize, gains in the yen crosses could help support USD/JPY.
Even if equities recover, continued declines in US yields would leave the dollar itself under pressure. If equities and US yields move in opposite directions, USD/JPY may continue to swing back and forth.
US ADP Employment Report
The October ADP employment report is due at 1:15 p.m. London time.
The market expects an increase of 70,000 jobs, down from 90,000 previously.
A stronger-than-expected result could point to resilient private-sector employment, potentially lifting US yields and supporting the dollar. Since the dollar has already sold off following the election, a strong reading could also prompt a short-covering rebound.
A weaker result, by contrast, could heighten concerns ahead of Friday’s US employment report and add to dollar selling.
ADP and the official US employment report use different samples and methodologies. Do not use the ADP result alone to predict Friday’s data; watch how Treasury yields react after the release.
US ISM Services PMI
The October US ISM Services PMI is due at 3:00 p.m. London time on November 4.
The forecast is 54.7, slightly below the previous reading of 54.9. If the result matches expectations, the index will remain above 50, the threshold that separates expansion from contraction, indicating continued growth in the services sector.
The ISM manufacturing index released earlier came in above expectations. If the services index is also strong, the resilience of the US economy could be reassessed positively, potentially supporting a dollar rebound.
Alongside the headline index, watch employment, new orders, and prices paid. Strong business activity and employment, combined with persistent price pressures, could support expectations for further rate increases.
If employment and new orders weaken and price pressures ease, US yields could fall further and the dollar could remain under pressure. If the ADP and ISM results point in different directions, the market may reverse course after each release.
Oil and the Middle East
NY crude futures are trading near $96, having pulled back from their recent sharp rise.
President Trump said there are no plans to attack Iran in the near term. However, the US midterm elections being over does not mean uncertainty in the Middle East has been resolved.
Confirmed progress in diplomatic talks could ease concerns about oil supply, inflation in the US, and safe-haven demand for the dollar. Conversely, reports of renewed clashes or stalled negotiations could lift oil and the dollar.
The US weekly petroleum inventory report is due at 3:30 p.m. London time on November 4. Alongside changes in inventories, watch whether Middle East headlines alter the direction of oil prices.
Euro and Pound
EUR/USD rose from around 1.1187 in Tokyo to 1.1263, then slipped back into the 1.1230s.
The immediate focus is whether the pair can hold above 1.1200. To the upside, watch whether it can retest today’s high of 1.1263.
ECB officials have continued to refer to the possibility of a rate increase in December. The euro-area flash HICP due tonight is expected to show headline inflation at 3.9% year over year and core inflation at 2.5%. Whether firm inflation supports the euro will be an important test.
GBP/USD also rose at one point into the 1.3470s. Ahead of this week’s Bank of England meeting, dollar weakness has helped the pound recover.
Rate increases are already widely expected. If the BOE’s policy guidance falls short of market expectations, sterling could retreat even if the bank raises rates. It will be important to distinguish gains driven by pound-specific factors from those caused by broad dollar selling.
New Zealand Dollar
New Zealand’s third-quarter unemployment rate came in at 5.7%, above the market forecast of 5.5% and the previous reading of 5.6%.
A weaker labor market could restrain expectations for further rate increases. The New Zealand dollar may still benefit when the US dollar is under pressure, but concerns about the domestic economy could cap its gains.
Watch whether the New Zealand dollar is also bought against the Australian and Canadian dollars, rather than assessing it against the US dollar alone.
Key Points for the Overseas Session
- Can USD/JPY break above 158.62–158.77?
- If the pair retreats, will it find support near 157.94 or 157.64?
- Will US ADP employment exceed the forecast of 70,000?
- Will employment and prices paid in the US ISM Services PMI be strong?
- Will falling Treasury yields and dollar selling resume?
- Will post-election selling continue in US equities?
- Could the US Treasury’s borrowing and auction plans move yields?
- Which direction will oil take from around $96?
- Can EUR/USD hold above 1.1200?
Scenario
The main scenario is for post-election dollar selling to compete with yen selling prompted by the recovery in equities, leaving the market to look for direction with each US data release.
If both ADP and ISM are strong, US yields could rebound and prompt dollar buying, with USD/JPY potentially testing 158.77. If equities also hold firm, yen selling could help push the pair higher.
Conversely, if both reports are weak and lower US yields coincide with falling equities, dollar selling and yen buying could strengthen at the same time. USD/JPY could then retest the mid-157s and today’s low of 157.41.
The first reaction to the election result has largely played out. As attention shifts back to the health of the US economy and labor market, watch whether US yields and equities move in the same direction.
