close icon

As USDJPY Plunges, Ralph Elliott is Smiling Somewhere

It has been a wild ride for USDJPY traders last week. The pair opened at 111.31 on Monday and rose to 111.83 on Wednesday before crashing to 110.69 by Friday. It still managed to close the session above the 111.00 mark, but that is hardly a big relief for breakout traders, who thought joining the bulls above 111.50 was a good idea.

If they do not want to make the same mistake again, they have to understand what caused USDJPY’s sharp bearish reversal. We are not going to dwell on external factors like economic news or events to explain the pair’s behavior, because their impact can only be identified after-the-fact. Analyzing them will not make traders better prepared for the next time.

Instead, we will focus on the Elliott Wave Principle. First, because its patterns tend to absorb external information and second, because it helped us stay ahead of USDJPY’s sharp u-turn last week. The chart below was sent to subscribers as a mid-week update on Wednesday, August 29th, while the rate was still hovering around 111.20.
USDJPY Elliott Wave analysis August 29th
As visible, this chart made us expect a rally to approximately 111.80, followed by a bearish reversal. The Elliott Wave logic leading to this assumption was simple: the decline from 113.18 to 109.77 looked like a simple a)-b)-c) zigzag correction with a triangle in the position of wave b). According to the theory, once a correction is over, the larger trend resumes. And since the larger trend, which preceded this correction, was pointing north, it made sense to expect a five-wave impulse to the upside to emerge from the bottom at 109.77. On Wednesday morning, its wave “v” was still missing, hence the short-term positive outlook aiming at 111.80.

On the other hand, every impulse is followed by a three-wave retracement in the opposite direction. This simple, but important rule, indicated that USDJPY was weaker than it appeared and prevented us from trusting the bulls too much. The updated chart below shows where USDJPY stands at ahead of Monday’s open.
USDJPY updated Elliott Wave analysis
The five-wave impulse pattern from 109.77 was complete by the end of the day. It then took the bears two days to erase over 110 pips of its progress. While the much bigger camp of news-followers had to deal with the impossible task of predicting the market’s exact reaction to any upcoming statements and reports in the economic calendar, the much smaller group of dedicated Elliott Wave analysts was already given a hint about USDJPY’s intentions. Furthermore, in contrast to the constantly changing external data, which allows an almost infinite number of different interpretations, the Elliott Wave pattern which helped us prepare for the recent USDJPY reversal was very similar to the one Ralph Nelson Elliott discovered over eight decades ago, in the 1930s. Some things never change.

What will USDJPY bring next week? That is the subject of discussion in our next premium analysis due out later TODAY!



Stay informed with our newsletter

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

Privacy policy
You may also like:

GBPJPY Bears Aiming at 120, Before Giving Up

Whether it is because of Brexit or not, GBPJPY has been trading below 160.00 ever since the referendum in June 2016. The pair has been locked in a wide range between 156 and 124 for four years now. Last week, it closed the session at 134.66, down from 138.84 at the open. In order to…

Read More »

Elliott Wave Setup Helps EURUSD Add 325 Pips

EURUSD has been under pressure for over two years now. The pair reached 1.2556 in February 2018, but has been making lower lows and lower highs ever since. Yet, the past couple of weeks painted a different picture. Between May 18th and May 29th, the euro surged 325 pips against the U.S. dollar. In those…

Read More »

EURGBP Pattern Signals Bullish Reversal Ahead

EURGBP has been in free fall since March 19th, when it rose to 0.9500. A month and a half later now, the pair is hovering below 0.8730, down 8% from the peak. Is the downtrend going to continue or should we expect a change of direction? That is the question we hope to answer in…

Read More »

GBPUSD Aiming at 1.30, but May Tumble to 1.21 First

Not long ago, we shared our long-term view of GBPUSD. In our opinion, the down-phase of the pair’s cycle, which is in its 13th year now, is almost over. One last dip to 1.1000 is likely to be followed by a major bearish reversal and the start of the next up-phase. Now, we are going…

Read More »

British Pound ‘s 13-Year Downtrend Almost Over

The thirteen-year period between 2007 and 2020 started with the biggest crisis since the Great Depression and is about to end with the biggest crisis since the Great Depression. Between the two, the longest economic expansion on record took place. And while stock markets around the world reflected that recovery, some currencies have been in…

Read More »

Ahead of the Move: EURUSD Adds 500 Pips in a Week

At the start of last week EURUSD was trading below 1.0700. The pair had fallen from as high as 1.1496 in just two weeks as coronavirus cases in Western Europe kept climbing disturbingly fast. And while fundamental traders had every reason to expect more weakness, the charts were sending a different message. The Elliott Wave…

Read More »

GBPUSD Completes Pattern, Uptrend to Resume

When we last wrote about GBPUSD Britain was still an EU member. Today, that is no longer the case as the country left the Union on January 31st. On the other hand, the pair is roughly unchanged, currently hovering around 1.2900. In fact, GBPUSD has been tracking a classic Elliott Wave pattern. Take a look…

Read More »

More analyses