GBPJPY topped at 195.87 in June, 2015. During the last one year, the pair lost over 67 figures, falling to as low as 128.76 last week. Prior to this crash, there was a strong rally from 116.83. So, a 79-figure bullish run was followed by a 67-figure sell-off. Well, the FOREX market could really be a roller coaster sometimes. Could this major bearish reversal be anticipated and if yes – how?
By applying the Elliott Wave Principle to the weekly chart of GBPJPY(shown below) on March 24th, 2014, we came to the conclusion the uptrend is probably in its final stages. Nearly two years and four months ago, when we published “GBPJPY, From Large to Small”, the pair was looking like this.
The only way to predict the end of a trend is by not focusing solely on it, but to look at the bigger picture. That is what we did in March, 2014. GBPJPY’s current weakness is just a phase of a larger downtrend, which actually began in July, 2007. As the chart above shows, the bears drew a five-wave impulse between 248.91 to 118.84. But every impulse is followed by a three-wave correction in the opposite direction. Accordingly, the entire development since the bottom at 118.84, formed in January, 2009, is an expanding flat correction. The weekly chart allowed us to recognize these two patterns, which meant GBPJPY was about to finish wave C of the retracement soon. Having in mind that once the correction was over, the larger downtrend should resume, our outlook was extremely bearish in the long-term. The next chart shows how the situation developed since.
It was impossible to know about Brexit and central banks’ decisions nearly two and a half years in advance, so we did not even try to predict those. Instead, relying on the Elliott Wave principle proved to be the correct approach once again. Its rules are applicable to all degrees of trend, including the biggest ones, which is crucial for predicting such large-scale reversals.
From now on, the entire correction is supposed to be retraced, which means levels below 116.00 could be seen. The bears still reign over GBPJPY.
