close icon

Trade War Fears Shrugged Off by USDJPY

Less than a month ago, USDJPY was trading below 105.00 after plunging to 104.64. The media hurried to explain the dollar’s weakness against the Japanese yen with the looming trade war between the United States and China. Today, a trade war between the two largest economies is a near certainty, after China threatened to fight back and impose $50 billion worth of tariffs on 106 U.S. goods, including soybeans, aircraft and vehicles. Yet, USDJPY’s reaction to the trade war escalation is in the exact opposite direction this time with the pair climbing to 107.68 so far.

How come? If USDJPY initially fell when the U.S. imposed its first tariffs, why didn’t it accelerate to the south, when both countries threatened to go to a full-blown trade war? The logic behind USDJPY’s rally escapes us, too, but the Elliott Wave Principle comes to the rescue. A pattern hiding in plain sight on the chart below, sent to subscribers before the market opened on March 26th, holds the answer.
usdjpy elliott wave analysis march 26 trade war
Two patterns, actually. First, there was a five-wave impulse to the downside from 114.74 to 104.64. Two degrees of trend could also be recognized within wave 3). According to the theory, every impulse is followed by a three-wave correction in the opposite direction. And second, there was a triangle in the position of wave 4) of the five-wave decline and the Wave principle states that triangles precede the final wave of the larger sequence. In USDJPY’s case, that is wave 5). So, the 4-hour chart led us to conclude that “a recovery to 108.00 should soon begin.” That was 19 days ago. An up to date chart is given below.
usdjpy elliott wave analysis april 13 trade war
USDJPY has not reached 108.00 yet, but it is almost there. In addition, the recovery took the bulls a lot less time than we expected. Had we ignored the charts an listened to the trade war narrative, the pair’s rally would have caught us completely by surprise. Besides, recognizing a pattern on a chart turns out to be a lot easier than predicting President Trump’s decisions.

What would USDJPY bring next week? That is the subject of discussion in our next premium analysis due out on April 16th.



Stay informed with our newsletter

Latest Elliott Wave analysis on different topics delivered to you weekly.

Privacy policy
You may also like:

USDCNH Elliott Wave Pattern Points to Recovery

Less than five months ago, on November 1st 2018, the U.S. dollar climbed to 6.9806 against the Chinese yuan, following a sharp rally from as low as 6.2359 in March. Unfortunately for bulls, USDCNH couldn’t maintain the positive momentum. As of this writing, it is hovering around 6.7200. In order to find out if the…

Read More »

NZDUSD Bulls Choosing a Path to 0.7000

Less than three months ago, on January 7th, we published an analysis of NZDUSD. It was trading near 0.6750 at the time, following a sharp decline from 0.6970. However, instead of simply extrapolating the selloff into the future, we examined the chart below through an Elliott Wave perspective. And it gave us a few reasons…

Read More »

USDJPY: How to Buy and Hold a Forex Pair

USDJPY has been in recovery mode since the “flash crash” on January 3rd. The pair plunged to as low as 104.82 that day, but the bears couldn’t maintain their momentum. The market reached 112.14 on March 5th for a rally of over 730 pips. Of course, picking up all of it would have been pure…

Read More »

USDCAD Bears Paying the Price for Failing at 1.3069

A week ago, USDCAD was barely holding above 1.3100. The pair was still in the doldrums following a steep decline from its late-December high of 1.3665 and it appeared the bears had no intention of leaving. But in order to confirm their ambitions to drag USDCAD even lower, they first had to deal with the…

Read More »

EURUSD Reversal Needed “Breathing Space”

EURUSD plunged below 1.1260 earlier today. The pair has been steadily declining during the last twelve months and the latest drop suggests a new low is very likely to be reached soon. But it wasn’t all that clear two weeks ago, when the Euro was hovering around 1.1400 against the U.S. dollar. Then the Elliott…

Read More »

A Month Ahead of USDCAD ‘s Bullish Reversal

USDCAD finished 2018 in a positive mood. The pair reached 1.3665 on the last day of last year, but 2019 has not been so generous to the bulls so far. By February 1st, the rate was down to 1.3069, losing over 4.3% in just a month. But let’s take a step back and see where…

Read More »

EURNZD: Is February Going to Mimic December?

It was November 30th, 2018, when we last talked about EURNZD. The pair was trading near 1.6570, following a sharp selloff from as high as 1.7929 in less than two months. After such a huge and fast decline, traders were understandably very pessimistic about the pair’s prospects going into December. However, extrapolation is a dangerous…

Read More »

More analyses