Last week, when most major currencies like the euro, the Canadian dollar and the British pound (not to mention the Turkish lira) fell against the U.S. dollar, one currency managed not only to hold its ground, but to actually gain some against the greenback. The Japanese yen ‘s rise dragged the USDJPY pair down to an intraday low of 110.51 on Friday, August 10th.
Just ten days earlier, on August 1st, USDJPY was trading above 112.10 and it looked like the yen was going to be the U.S. dollar’s latest victim. Some of the things other analysts use to explain the Japanese yen ‘s recent strength include Japan’s GDP data, US inflation data, interest rates speculation, trade war concerns and, of course, Turkey’s currency crisis. Our explanation is a little different and a lot simpler. It involves the Elliott Wave Principle and the chart below, which we sent to subscribers on Wednesday, August 1st. (some marks have been removed for this article)
Ten days ago, the 30-minute chart of USDJPY revealed a textbook five-wave impulse to the south from 113.18 to 110.59, followed by a three-wave recovery up to 112.15. According to the theory, the trend was supposed to resume in the direction of the impulsive pattern. Therefore, despite the three-wave recovery, the outlook was still negative towards a new low near 110.50, as long as the pair was trading below the starting point of the impulse at 113.18. The updates chart below shows what happened next.
The dollar started falling against the Japanese yen almost immediately and never threatened 113.18. The recent decline doesn’t look exactly like an impulse, but the truth is traders cannot and don’t have to know what is going on all the time to make a good use of the Elliott Wave analysis. That is still a better strategy than trying to guess which of the numerous factors the market takes into account will trigger its next move and in what direction.
What will USDJPY bring next week? That is the subject of discussion in our next premium analysis due out on Sunday!