USDJPY Gains 450 Pips and Counting in Two Months

2020 wasn’t a good year for USDJPY bulls. Starting from 108.63 in January, the pair closed at 103.32 on December 31st, down 4.9% in twelve months. But what the dollar lost against the yen in the entire 2020 it is now close to recouping in less than three months.

USDJPY is approaching 108.50 as of this writing, up over 500 pips since the start of 2021. With all the money-printing by the Fed since the COVID-19 crisis started one wouldn’t expect the dollar to be strengthening. Yet, it is and if it wasn’t for Elliott Wave analysis, we would have been just as baffled.

Fortunately, a pattern emerged nearly two months ago, which suggested much higher levels can be expected in USDJPY. Take a look at it on the chart below, sent to subscribers on January 11th, 2021.

The pattern in question was the classic 5-3 Elliott Wave cycle, but it wasn’t as clear as one might hope. The impulsive phase was represented by the sharp surge from 101.18 to 111.72 in March 2020, labeled as wave (a). The following nine months USDJPY spent in a slow and choppy decline, which eventually evolved into a w)-x)-y)-x)-z) triple zigzag in wave (b).

USDJPY Risk/Reward Ratio Favored the Bulls in January

Wave ‘c’ of z) of (b) looked like an ending diagonal which is in and of itself a reversal pattern. The pair breached the line connecting the highs of waves ii and iv of the diagonal, thus confirming the bullish reversal. This allowed us to join the bulls near 104.00 with a stop-loss level at the bottom at 102.59.

As long as USDJPY traded above this key level, it made sense to expect more strength in the months ahead. Less than two months later now, let’s take a look at the updated chart below.

It took some time for the pair to take off, but 102.59 was never in danger. Right now, the uptrend in USDJPY seems to be accelerating even as the Fed seems willing to let inflation rise.

Of course, there are other factors besides money-printing that affect exchange rates. Predicting what influence every single of them is going to have on a given currency pair, however, is next to impossible. Elliott Wave analysis, on the other hand, makes things much simpler by focusing our attention solely on the charts and patterns. Enough to put traders ahead of the rally in USDJPY.