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:

EURUSD Turns Up Ahead of Brexit Talks Breakthrough

EURUSD is up by 260 pips since the beginning of October. The pair climbed from 1.0879 to 1.1140 in just 14 trading days. The rally appears to be fueled by optimism regarding a possible Brexit deal and the tentative “phase-one” agreement between the US and China. In our opinion, however, there is something more to…

Read More »

USDJPY Pattern Makes More Sense than Politics

The last two weeks were different like night and day for USDJPY traders. The pair fell from 108.47 to 106.48 during the first three days of October and eventually closed the week in negative territory. The last five trading days, on the other hand, told a much different story. Last week, USDJPY rose from 106.66…

Read More »

GBPAUD Elliott Wave Setup Supports the Bears

Between July 30th and August 26th, GBPAUD managed to recover from 1.7561 to 1.8337. Despite the no-deal Brexit prospects, the Australian dollar turned out to be even weaker than its British rival for almost a month. However, GBPAUD is down by roughly 400 pips since August 26th. Traders are probably wondering if this is a…

Read More »

EURUSD Absorbs Economic, Trade War and G-7 News

EURUSD made a new low last week. The pair fell to as low as 1.0963 on Friday adding to the downtrend it has been trading in since February 2018. The last time the European currency traded this low against the greenback was in May 2017. The last few months have been characterized by new lows,…

Read More »

Trump Didn’t Drag USDJPY Down. Elliott Wave Did

USDJPY plunged sharply last week after President Trump’s latest China tariff threats. The pair reached a high of 109.32 on Wednesday, July 31st, but finished the week below 106.60 on Friday. However, just because something happens after something else, it doesn’t mean there is causation between the two. In USDJPY’s case, the stage was set…

Read More »

GBPNZD Falls as No-Deal Brexit Looms

The possibility of a no-deal Brexit received another boost after Boris Johnson became Prime Minister of the UK. The market, however, doesn’t seem to like those prospects. The Pound Sterling has been losing ground against the Euro, the Aussie, the US dollar and other rival currencies. GBPNZD is down, too. Less than three months ago,…

Read More »

USDCNH Looks Bearish in the Midst of a Trade War

Less than a month ago USDCNH rose to 6.9621 and it looked like reaching a new multi-year high above 7.0000 was only a matter of time. Unfortunately for the bulls the market chose otherwise. USDCNH fell to 6.8164 on the last day of June. As of this writing, the pair is hovering around 6.8755 following…

Read More »

More analyses