This is a rewritten, expanded version of the article analyzing the USDJPY currency pair using Elliott Wave principles, originally published by EWM Interactive on August 4, 2023. Full credit for the original analysis goes to EWM Interactive.
Analyzing USDJPY Using Elliott Wave Theory – August 2023
In the world of forex trading, technical analysis provides investors with crucial tools to forecast future market movements based on historical price data. One such methodology, notable for its wave-like perspective on market psychology, is Elliott Wave Theory. According to this theory, financial markets move in repetitive cycles of waves, driven by the collective psychology of market participants. Each major trend and countertrend can be subdivided into smaller fractal waves, presenting opportunities for traders to anticipate major moves.
The USDJPY pair, one of the most liquid and heavily traded currency pairs globally, is a popular focus of such analysis. With the US dollar and the Japanese yen both serving as key safe-haven currencies under various conditions, the implications of their shifts resonate across global markets. Recent Elliott Wave readings conducted by EWM Interactive suggest that the pair may soon complete an important corrective phase and resume its long-term resurgence.
The article published on August 4, 2023, explores the price action of USDJPY through the lens of Elliott Wave analysis. The authors argue that a bullish trend could resume soon, likely pushing the pair above its October 2022 highs. Let’s break down the key components of the analysis and expand on its implications for traders and analysts moving forward.
Overview of the Long-Term Trend
– According to EWM Interactive, the broader Elliott Wave structure for USDJPY reveals a clear five-wave pattern to the upside, which began at a significant low in early 2021.
– From there, the pair rallied in what appears to be an impulsive five-wave sequence, marked by increasing volume and momentum in wave 3.
– Elliott Wave Theory dictates that market trends develop in a 5-3 structure: five waves in the direction of the trend (impulse), followed by three corrective waves in the opposite direction.
– The move from the 2021 low to the 2022 high represents the impulsive (motive) phase, composed of waves 1 through 5.
EWM identifies the October 2022 peak — around the 151.94 level — as the top of this five-wave impulse. Following this peak, the pair appears to have entered its corrective phase.
Corrective Phase Since October 2022
– After peaking in October 2022, USDJPY entered a declining pattern, retracing some of the gains of the prior rally.
– This pullback is considered part of a three-wave A-B-C correction, which is consistent with Elliott Wave Theory. In this model:
– Wave A typically shows the first decline after the motive wave
– Wave B represents a temporary retracement as bulls attempt to recover
– Wave C completes the correction by pressuring the price lower than wave A’s end
– EWM Interactive stresses that such corrections are necessary to “reset” the market before the next wave of trending activity begins.
– As per the August 4 analysis, this A-B-C correction appears near completion, suggesting an upward impulse (a new motive wave) may be in its early stages or about to begin.
Wave Interpretation on the Daily Chart
Looking closer at the daily chart timeframe, EWM’s labeling includes the following key components:
– Wave A: A significant initial decline from the 151.94 high, suggesting profit-taking and the end of the multi-month advance.
– Wave B: A complex sideways consolidation that retraced roughly 50 to 61.8 percent of the wave A decline—a typical Fibonacci retracement level for wave B movements.
– Wave C: A final leg downward that, according to the wave count, printed a lower low below wave A, completing the corrective phase.
The authors identify that wave C consists of
Explore this further here: USD/JPY trading.