Title: Elliott Wave Analysis of USDJPY: What Lies Ahead?
Original Author: EWM Interactive
Date of Original Analysis: August 4, 2023
Rewritten by Assistant (Credit: EWM Interactive)
The USDJPY currency pair has been particularly intriguing for forex analysts and traders. Over the course of the past several years, its price behavior has demonstrated easily identifiable Elliott Wave structures, which can provide valuable insights into likely future movements. In their August 4, 2023 report, EWM Interactive provided a detailed Elliott Wave analysis of USDJPY, pointing towards a potential reversal following a sustained uptrend. This article is a comprehensive and restructured explanation of their findings, expanded to deliver deeper clarity while preserving the original insights and conclusions.
Context and Market Behavior
The USDJPY has been in an upward trend since the lows recorded back in early 2021. Investors have been responding to a variety of macroeconomic factors, including interest rate differentials between the Bank of Japan and the US Federal Reserve, inflation data, risk appetite, and safe-haven flows. EWM Interactive has continually applied Elliott Wave Theory to discern critical turning points within this larger structure, and their August 4th analysis focuses on whether the rally is losing steam.
Highlights from the August 2023 USDJPY Elliott Wave Analysis:
– The prolonged rally since January 2021 exhibits clear impulsive wave structure
– The formation of a five-wave pattern suggests a major top may be near
– Indicators show price exhaustion, supporting the view of a potential correction
Now let’s break down the Elliott Wave interpretation that lies at the heart of this analysis.
The Long-Term Elliott Wave Count
Elliott Wave Theory works off the idea that market prices unfold in repetitive cycles defined by investor psychology. These cycles can be seen through repeating patterns of five-wave impulse moves in the direction of the prevailing trend, and three-wave corrective moves against it.
According to the analysis by EWM Interactive, the entire bullish pattern for USDJPY beginning in early 2021 fits within a well-formed five-wave impulse sequence (labeled 1 through 5). Here is a closer look at each wave segment.
Wave 1:
– The initial impulse wave began in January 2021
– The pair rose from the 102.50 zone to approximately 111.50 by the middle of 2021
– This wave marked the beginning of a new uptrend and displayed strong momentum
Wave 2:
– A corrective retreat followed, taking USDJPY back toward the 108 region
– This correction took the form of an ABC zigzag, which is typical for a Wave 2
– Market uncertainty and profit-taking were dominant drivers at this stage
Wave 3:
– As expected in Elliott Wave rules, the third wave was the most powerful
– USDJPY surged from roughly 108 to as high as 139 by the middle of 2022
– The combination of a hawkish Fed and a dovish BOJ fueled this sharp ascent
Wave 4:
– Price then pulled back again, correcting toward the 127-128 support area
– The proposed Wave 4 correction was relatively shallow and brief
– It demonstrated a triangle structure, which often precedes final waves
Wave 5:
– The recent rally staged by USDJPY from the 128 level up to approximately 145 is being considered the fifth and final wave of the trend
– The wave count suggests that the bulls are now pushing the last leg of the impulse
– According to EWM Interactive, this final push is showing signs of potential exhaustion
All of this evidence indicates that the five-wave impulse may be complete or nearly complete, at which point we would expect a significant correction known as an A-B-C pattern. This retracement would likely bring the currency pair back toward lower support zones.
Technical Indicators Supporting a Correction
Besides the wave count, the EWM Interactive analysis points to additional technical factors that support the correction scenario
Explore this further here: USD/JPY trading.