USD/JPY – 3 Paths to Complete Downtrend

March 14, 2018

3 min read

Dear Traders,

The course of the USD/JPY remains vague and uncertain. The pattern can still morph into several scenarios.

This analysis will provide a quick update on the latest price action of the USD/JPY.

Things seemed to go in favor of the bulls until the US CPI release, which caused almost the entire gains of the prior trading hours to be reversed. This has opened up the door again for more bearish scenarios to come into play. Unfortunately it is impossible to tell which one has a higher likelihood at this time.

Scenario 1 (white lines): The price action since the Feb 16 low might be building a large running triangle as part of wave 4. This scenario would indicate strongly that a reversal should follow quickly after a downward break of the triangle pattern. This triangle does look a bit on the large side, but not so much if the downtrend is viewed from the daily chart perspective. We would need to see some more 3-wave action within the current range to validate this scenario.

Scenario 2 (yellow lines): Equally valid from an Elliott wave perspective would be to call a bottom at the Mar 2 low of 105.24 and label the subsequent price-action as a series of 1-2, 1-2 waves. The high of yesterday being the second wave 1 and the current bearish correction being the second wave 2. The micro structure since yesterday’s high is difficult to read, and a bullish bounce from anywhere between 106.45 – 105.50 would still be valid.

Scenario 3 (blue lines): An anomaly in the wave structure at the beginning of the USD/JPY downtrend also leaves open the possibility that a further sub wave requires completion. This could mean that the upwards move since the low Mar 2 is its own wave 4 (dividing the move into a zigzag) and that a straight impulsive wave 5 started at since yesterdays high, which would need to establish a new low during it swing.

All the best along your trading journey

Hubert