It is not just stock market investors and oil bulls, who have been suffering lately. The holidays do not promise to be very happy for USDJPY bulls, as well. The pair fell to 110.81 on Thursday, revisiting levels last seen in early September.
The Fed rate hike, the stock market crash and the tensions between USA and China were among the most notable reasons the media used to explain the USDJPY slump with. Unfortunately, after-the-fact explanations are of little value to traders and investors, who need to stay ahead of the market, in order to take advantage of it.
Elliott Wave analysis is our solution to this problem. It is a pattern recognition technique, discovered by Ralph Nelson Elliott in the 1930s, which is still applicable today, more than 80 years later. For example, several hours prior to the Fed’s rate hike on Wednesday, December 19th, we sent the following chart of USDJPY to subscribers.
This chart was accompanied by this paragraph: “USDJPY’s decline from 113.71 can be expected to evolve into a five-wave impulse. A new low, followed by a three-wave recovery to roughly 112.60 can expected before the downtrend resumes.”
That was all. No politics, no economics and no news interpretations. Just the simple Elliott wave logic stating that a three-wave correction follows every impulse and then the larger trend resumes in the direction of the five-wave pattern. Since this was a 30-minute chart, it did not take too long for this setup to give results.
USDJPY initially fell to 112.09 in wave “v”. Then, an a-b-c zigzag correction lifted the pair to 112.67 and completed the entire 5-3 wave cycle from 113.71. The stage was set for a plunge and the bears took advantage of the dollar’s vulnerability to drag it down to 110.81 versus the Japanese yen on December 20th.
The pair closed at 111.22 on Friday. We can guarantee you that whatever it does in the future, the financial media will find a way to explain it with a piece of news, an event or a statement by a public figure. But unless traders learn how to turn back time, there is no way to extract anything from it. With the help of the Elliott Wave principle, on the other hand, they do stand a chance.
What will USDJPY bring next week? That is the subject of discussion in our next premium analysis due out late Sunday!