close icon

USDJPY Proves You Don’t Need to Pick Tops/Bottoms

USDJPY closed at 111.72 last week and is now within striking distance of its 2019 high of 112.14. But just two weeks ago, the pair was down to less than 110.00 after a sharp selloff from 111.70.

Instead of joining the bears simply because the price was falling, we looked for an Elliott Wave pattern to guide us. The chart below, sent to subscribers before the open on Monday, March 25th, shows what we found.

USDJPY completes Elliott Wave correction

The hourly chart of USDJPY revealed that the decline from 112.14 had the structure of a simple a-b-c zigzah correction. The five sub-waves of wave “c” were clearly visible, as well. According to the Wave theory, once a correction is over, the larger trend resumes.

USDJPY – Staying Aside at First

Since USDJPY was rising prior to that three-wave pullback, it made sense to expect a bullish reversal soon. However, picking tops or bottoms is never a good idea. First, because it is impossible to identify a specific stop-loss level. And second, because the market can simply dismiss the pattern you relied on for the reversal and move on in the same direction. That’s why we thought “staying aside is the best decision.”

By Wednesday, March 27th, the situation was much improved for USDJPY traders. The chart below was included in the mid-week updates our clients received that day.

USDJPY bullish Elliott Wave reversal in place

With the bullish reversal already in place it was now possible to identify the bottom at 109.70 as the invalidation level for the positive outlook. This meant that “as long as USDJPY trades above 109.70, the big picture positive outlook remains valid.

A Trading Setup Presents Itself

A small three-wave pullback in wave ii was expected to offer a good risk/reward buying opportunity. The next chart shows USDJPY as of today.

Elliott wave setup sends USDJPY higher

Wave ii dragged the pair to 110.02 on March 28th, but 109.70 was never threatened. On April 5th, USDJPY reached 111.82, up 180 pips from the low of wave ii. In that case, the reward turned out to be six times bigger that the risk taken.

Just A Pattern is Not Enough

The bottom line is that spotting a clear pattern is not enough. If this pattern doesn’t allow the trader to identify a specific invalidation level, it is nothing more than temptation. Furthermore, even when a key level is identified, the potential reward must be at least twice as big as the risk. Otherwise, the risk is not worth taking.

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



Stay informed with our newsletter

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

Privacy policy
You may also like:

USDJPY: Analyze, Prepare, then Let the Market Decide

USDJPY reached its higher level so far in 2019 yesterday. The pair climbed to 112.166, extending its recovery from the 109.71 bottom formed last month. But the bulls didn’t always look that confident. Just a week ago, the pair was hovering around 111.15, down from 111.83 five days earlier. Instead of forming an opinion based…

Read More »

USDCNH Elliott Wave Pattern Points to Recovery

Less than five months ago, on November 1st 2018, the U.S. dollar climbed to 6.9806 against the Chinese yuan, following a sharp rally from as low as 6.2359 in March. Unfortunately for bulls, USDCNH couldn’t maintain the positive momentum. As of this writing, it is hovering around 6.7200. In order to find out if the…

Read More »

NZDUSD Bulls Choosing a Path to 0.7000

Less than three months ago, on January 7th, we published an analysis of NZDUSD. It was trading near 0.6750 at the time, following a sharp decline from 0.6970. However, instead of simply extrapolating the selloff into the future, we examined the chart below through an Elliott Wave perspective. And it gave us a few reasons…

Read More »

USDJPY: How to Buy and Hold a Forex Pair

USDJPY has been in recovery mode since the “flash crash” on January 3rd. The pair plunged to as low as 104.82 that day, but the bears couldn’t maintain their momentum. The market reached 112.14 on March 5th for a rally of over 730 pips. Of course, picking up all of it would have been pure…

Read More »

USDCAD Bears Paying the Price for Failing at 1.3069

A week ago, USDCAD was barely holding above 1.3100. The pair was still in the doldrums following a steep decline from its late-December high of 1.3665 and it appeared the bears had no intention of leaving. But in order to confirm their ambitions to drag USDCAD even lower, they first had to deal with the…

Read More »

EURUSD Reversal Needed “Breathing Space”

EURUSD plunged below 1.1260 earlier today. The pair has been steadily declining during the last twelve months and the latest drop suggests a new low is very likely to be reached soon. But it wasn’t all that clear two weeks ago, when the Euro was hovering around 1.1400 against the U.S. dollar. Then the Elliott…

Read More »

A Month Ahead of USDCAD ‘s Bullish Reversal

USDCAD finished 2018 in a positive mood. The pair reached 1.3665 on the last day of last year, but 2019 has not been so generous to the bulls so far. By February 1st, the rate was down to 1.3069, losing over 4.3% in just a month. But let’s take a step back and see where…

Read More »

More analyses