USDJPY plunged sharply last week after President Trump’s latest China tariff threats. The pair reached a high of 109.32 on Wednesday, July 31st, but finished the week below 106.60 on Friday.
However, just because something happens after something else, it doesn’t mean there is causation between the two. In USDJPY’s case, the stage was set for a notable decline long before Trump’s latest tweetstorm. The chart below, sent to our subscribers more than a week earlier, on July 24th, proves it.
The 4h chart of USDJPY revealed that the structure of the decline from 112.40 to 106.78 was impulsive. According to the Elliott Wave theory, a three-wave correction in the opposite direction follows every impulse. Therefore, we thought, once the corresponding corrective recovery ended, the larger downtrend in USDJPY was supposed to resume.
The pair was hovering around 108.00 at the time. It appeared the correction was unfolding as a w-x-y double zigzag. Wave ‘y’ was still in progress so a new swing high above the end of wave ‘w’ had to occur, before the bears return.
Regardless of the presence or absence of a specific catalyst, the Elliott Wave logic dictated that lower levels should soon be expected in USDJPY. Then, Trump threatened to impose new tariffs on $300 billion worth of Chinese goods.
The habit of the financial markets is to anticipate the news, not to follow it. The mood of the market is the real cause behind the next swing, not the piece of external information the media would later use to explain what happened. Mood which is best understood via repetitive Elliott Wave patterns.
Explaining everything after the fact is simply not enough. Successful traders stay ahead of the news and that is where Elliott Wave analysis really helps.
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