USD JPY dropped by more than 200 pips last week, but managed to recover almost completely. Is this a sign of the bull’s strength or maybe something else is waiting just around the corner? An important question to traders.
“If this is the correct count, USD JPY should make a new high above 109.74, but the 110.00 area may serve as a strong resistance and a reversal zone. The first target to the downside is around 108.50.” This is an excerpt of an article, called “USDJPY: expect a pull-back”, which we published on 30th September. On the chart below you can see how the exchange rate between the US dollar and the Japanese Yen looked like five days ago.
As visible, we had e perfect impulsive rally. According to the Elliott Wave Principle, every impulse is followed by a correction. That is why we expected at least a temporary reversal to bring prices back to the level of wave 4, around 108.50. The next chart depicts USD JPY as it is today.
Note, that 110.00 really did serve as a strong resistance. To be more precise, USD JPY topped at 110.08 and then reversed to the downside to reach our target two days later, on 2nd October. Prices fell a little lower to 108.00 and bounced back up sharply. The above-shown chart suggests, that this leap is another fifth wave – (5) – of a larger five-wave sequence. This means, that the same rule can be applied here as well and we should expect a new top above 110.08, but prepare for a reversal after it. We can even use the same minimum retracement level of 108.50, although the correction would probably be bigger this time.
