The original article, titled “Elliott Wave Analysis of USDJPY – August 4th, 2023,” was published by EWM Interactive. In this comprehensive rewrite, we will delve into the technical outlook for the USD/JPY currency pair using Elliott Wave Theory, staying true to the core analysis while expanding upon the explanations and market implications. All analysis originally attributed to EWM Interactive.
Elliott Wave Analysis of USD/JPY – A Detailed Breakdown
The USD/JPY currency pair has long been a focus for technical analysts and forex traders alike due to its high liquidity and economic sensitivity. As of early August 2023, the pair is displaying a complex wave structure that indicates a potential reversal pattern based on the Elliott Wave Principle.
In the original analysis, the authors at EWM Interactive identified a completed five-wave impulsive structure that concluded in October 2022, followed by a corrective three-wave move. The structure offers critical insights into the pair’s future movement.
Understanding the Elliott Wave Structure
Before getting into the specific USD/JPY forecast, it’s important to understand the basics of Elliott Wave Theory:
– It is a form of technical analysis that interprets market cycles and crowd psychology through repetitive wave patterns.
– According to the theory, market trends move in five-wave impulses (1, 2, 3, 4, 5), followed by three-wave corrections (A, B, C).
– Impulse waves move in the direction of the larger trend, while corrective waves move against it.
Five-Wave Impulse in USD/JPY
EWM Interactive’s wave count identifies that the USD/JPY completed a five-wave impulse between January 2021 and October 2022. This was a dominant bullish pattern resulting in a strong appreciation of the U.S. Dollar against the Japanese Yen. The structure of the five-wave pattern is as follows:
– Wave 1: The initial rally from the lows formed the first leg up in USD/JPY.
– Wave 2: A modest pullback that did not retrace deeply into Wave 1 territory.
– Wave 3: The strongest and longest rally, characteristic of a classic third wave in Elliott Wave Theory.
– Wave 4: A complex sideways correction that temporarily paused the bullish trend.
– Wave 5: A final push higher peaking in October 2022, which concluded the impulsive advance.
Subdivisions of the impulse support the count. Within Wave 3 and Wave 5, smaller-degree five-wave patterns can be observed, validating the impulsive nature under Elliott Wave rules.
Three-Wave A-B-C Correction
Once the five-wave impulse was complete, the market shifted direction, beginning a corrective phase. Corrections typically antidote the prior trend and come in various forms such as zigzags, flats, or triangles. In the case of USD/JPY, the correction appears to be a zigzag, denoted in three parts:
– Wave A: A sharp decline from the October 2022 top to the early 2023 lows.
– Wave B: A partial retracement of the decline, where the buyers regained some ground.
– Wave C: A renewed bearish wave extending the correction downward beyond the Wave A low.
According to EWM Interactive’s chart, Wave C reached a low below 127.20 before the bulls began showing signs of recovery. The entire correction from November 2022 to January 2023 fits well into a textbook zigzag formation, suggesting the corrective phase completed at that low point.
The Ending Diagonal in Wave C
A distinguishing feature of the Wave C structure is what appears to be an ending diagonal pattern. This is a special type of motive wave often seen in fifth waves or C waves of corrections. Characteristics of an ending diagonal include:
– Composed of five overlapping waves
– Triangle-like appearance
– Loss of momentum toward the end
– Shifts in sentiment and momentum signaling an upcoming reversal
In the USD/JPY case,
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