Just as many other crosses, GBPJPY tends to make large movements in short periods of time. This week was no exception. The pair rose to 175.00 on Monday, but than fell to 170.02 so far. The real question we have to ask is whether the latest weakness is the resumption of the larger downtrend, which has been reigning over GBPJPY since the middle of June 2015? That is the first thing, which comes into mind. However, the bears might have to fight for what’s theirs. The chart below explains why.
According to the Elliott Wave Principle, trends move in repetitive patterns, called waves. Impulsive are easier to spot in the direction of the larger trend, while corrective waves tend to move against it. Having that in mind, it seems that GBPJPY is currently in its wave 4 of a larger wave (3) to the south. Under different circumstances, we would expect wave 5 of (3) down now, since wave 4 has already retraced a large enough portion of wave 3. Trouble is, that sometimes, price is not the only thing we have to pay attention to, while counting waves. Time matters as well. Typically, waves two and four of similar degree would be equally time-consuming. In GBPJPY’s case, wave 2 of (3) took more than two months. That is why we do not believe the recent rally from 163.97 to 175.00 is the whole wave 4, since it took less than two weeks. Instead, we think GBPJPY is likely to stay in a range between these two figures for a while. Fourth waves often develop as triangles. We would not be surprised to see one here as well, before the bears officially return in wave 5 of (3). So, the downtrend in GBPJPY remains in progress, but you may have to be more patient with it from now on.
