The advance by USD/JPY has kicked off what we believe to be a new uptrend. The Elliott Wave model we are following indicates this could be powerful wave higher that retests and possibly exceeds the 2015 high of 126.
You can see from the daily chart below, USD/JPY advanced in five waves in late 2016. Since then and for all of calendar year 2017, USD/JPY has been correcting lower in a complex pattern. This w-x-y-x-z dip has retraced 61% of the previous up trend. Under this interpretation, the September 8 low of 107.32 is a key level.
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USD/JPY Daily Elliott Wave Count
Since September 8, prices appear to have advanced in another five wave impulse which sets into motion a larger up trend. USD/JPY has already broken above the orange trend line. A break above the red trend line will provide further confirmation an important low may be in place.
We cannot rule out a dip next week to 109.60. A correction of that nature is normal within the context of this wave pattern. A breakout that holds above 111.60 will lean the bias towards immediately higher levels to retest the red trend line near 112.80.
With the potential for a strong move higher, be careful about nitpicking over pennies. Manage the entry and trade size and let the trend do the heavy lifting for you. Learn about the biggest mistake traders make with this guide.
IG Client Sentiment shows traders have been shifting net long over the past 24 hours pushing the sentiment reading to +1.25. A shift towards net shorts recently is a bullish undertone to price. Therefore, sentiment lines up with the Elliott Wave model suggesting USDJPY may continue to trend higher in the coming weeks. View how live traders are currently positioned with our IG client sentiment tool.
---Written by Jeremy Wagner, CEWA-M
Jeremy is a Certified Elliott Wave Analyst with a Master’s designation. These articles are designed to illustrate Elliott Wave applied to the current market environment.
This article references an impulse wave. We have a one hour long webinar recording devoted to the topic of Elliott Wave impulses. Register to view it.
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Other Elliott Wave articles by Jeremy:
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