On December 15th GBPJPY climbed to 148.45 – the culmination of a rally, dating back to October 7th, when the pair fell to as low as 122.64. Unfortunately, just when it seemed that the bulls are holding the wheel, the bears somehow managed to prevail and drag the rate 600 pips lower – to 142.48 as of today.
Now, after the slump, people start to look for the reasons behind it. These reasons may vary widely from the economic conditions in the U.K. and Japan, through expectations about central banks’ decisions, to market manipulation. But if you have read some of our other articles, you know that we never look for reasons. Instead, we rely on the Elliott Wave Principle to help us prepare for what it is coming, before it arrives. That is why the GBPJPY on demand analysis we sent to one of our clients on December 19th did not include a single word about the economy, Kuroda or Mark Carney. Instead, it included four charts, one of which is shown below.(some marks have been removed for this article)
As visible, the analysis suggested it was not a very good idea to join the uptrend, while GBPJPY was trading above 147.16. The chart allowed us to spot an ending diagonal bearish pattern in wave (v). This, in combination with a double bearish divergence with the MACD indicator, made us think that “a pullback to 143.00 could be expected.” The next chart shows how things have been going since that forecast.
GBPJPY touched 142.99 yesterday, December 28th. And not even one economic report has been read, because all we had to do, in order to form that bearish opinion, was analyze the price behavior from the perspective of the Elliott Wave principle. Through its patterns, it reveals the market’s intentions before the greater part of the trading majority has any idea. Now you know what to look for, if you want to identify the next reversal.