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USD/JPY Down Day Largest Since July 2016 - More to Come?

USD/JPY Down Day Largest Since July 2016 - More to Come?

Jeremy Wagner, CEWA-M, Head of Education

Today, USD/JPY finished down nearly 230 pips making it the largest one day sell off since July 2016. My colleague hinted that we might be on the verge of a market upheaval. In times of market duress, JPY strength (and USD/JPY weakness) has been a safe haven play and today USDJPY has lived up to that reputation.

Looking into the Elliott Wave picture the pattern that stands out the most to me is the five wave impulse that began on April 16, 2017 and finished on May 10, 2017.

Since we have a five wave impulse to start a new trend, we can imply a couple things on the current pattern.

First, the April 16, 2017 low of 108.13 likely holds as the current uptrend appears incomplete. Though this sell off has been sharp and aggressive, we will keep an eye out to see if the selling pressure abates. As a result, we will look for a partial retracement of the uptrend and seek out symptoms of a reversal higher. Today’s price action carried to the 61.8% retracement level of the prior uptrend. This price level also coincides with the April 23 high of 110.52. Perhaps a shorter term bottom was found.

In this same price zone is another wave relationship so we may see a bounce to 111.84 over the coming days. If this bounce occurs, the price action near 111.84 will tip the hand as to whether the near term sell off is over and the resumption of the uptrend proceeds or if the downtrend will continue lower.

The second implication of the previous impulse is that after the partial retracement ends, we can anticipate another five wave move higher of similar size. The previous impulse was just over 600 pips. Therefore, after the selloff ends, we will look for another rally of near 600 pips.

USD/JPY Down Day Largest Since July 2016 - More to Come?

The sentiment picture suggests the selloff is not quite over as the current sentiment reading is +1.45 and has been growing. If this sentiment reading continues to increase, then that would signal a shift in sentiment that lines up with the overall Elliott Wave picture. Learn how to trade with sentiment with our IG client sentiment guide.

Do you find USD/JPY movements confusing? Read our Japanese Yen quarterly forecast.

---Written by Jeremy Wagner, CEWA-M

Discuss this market with Jeremy in Monday’s US Opening Bell webinar.

Follow on twitter @JWagnerFXTrader .

Join Jeremy’s distribution list.

Read the recent Gold Elliott Wave article calling for $1260.

Read the recent Dow Jones article and how today’s largest sell off since September fits into the overall Elliott Wave picture.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.