Elliott Wave analysis of USDYEN or JPY has not figured on WaveTmes for a long time. In fact, I haven’t published any currency analysis for a while. That is not to say I haven’t been looking at it. Treasurers of large corporations and hedge fund managers have been in regular touch. I present you with a bunch of charts on USDYEN which you can use as part of your learning. This blog exists to help you get better at interpreting the waves, and also as a living book, a valuable resource that compliments my Elliott Wave Book, Five Waves to Financial Freedom. I suggest that you open each Elliott Wave chart on a new tab! Enjoy.
Hello Traders, Its been a few weeks since I updated this blog. Incidentally, I had not suggested any trade to the members of the Exclusive Club also for quite a while (if you leave out the trade on an Indian Stock that reached within a whisker of its profit objective). There is no need to be super active in order to make money! The best trades are those where you know the odds of success are stacked in your favor. I try to be patient for those set ups. Last Thursday, I spotted such an opportunity in USDYEN and I am happy to share parts of that with you. You can see from what follows below that trading is a completely different game from doing analysis. Regular readers of my blog (and my responses to comments) would know that I have always maintained that the Raison d’être for any analysis should be to make money, not to showcase one’s ability to come up with fancy charts! A key advantage that I enjoy is my knowledge that the markets can do whatever it wants, no matter how clever I try to be! Armed with that knowledge, I can sidestep some of the traps that snare most traders. This is not to say that I haven’t experienced any losses. It is just that these losses are less frequent and usually quite small compared to the winning trades. What follows is how I began my trade idea. 6 June 2013 I started preparing for this update when the USDYEN was at 98.52 around 6.30pm my time. Around 6.50, my wife reminded me that I have to go for my walk. The Yen was trading at 98.09 by then. You can see the last prices on the 3 charts. About 40 minutes later, it was already below 96! Such is the power of a C wave or a 3rd wave. You CANNOT afford to stand in its path. Of course, you could have positioned short, but that is ‘what could have been’ not what we need to do from now. Anyway, the key lesson for you is when a 3rd wave or C wave is developing, NEVER, NEVER try and pick obvious supports to go against that move. Now for the trade idea. By the time I am writing this, the USDYEN has bounced back to 97.23. In case it stops around 97.30 and starts coming off, there is a reasonably good chance to retest the 95.95 low, and possibly break it to reach 95.60. I suggest that you be patient for that move to happen. Place a small buy order at 95.82 and add some more at 95.62. Your stop can be placed at 95.40, risking some 30 pips. You are looking for a move back to 97.30 at least.
A little later I added an update that suggested that while we were waiting for the dip to our supports, we might head higher and if we see 97.65, we can actually sell there with a stop at 97.80. The USDYEN went only as high as 97.49 and from there it collapsed to a low of 95.53. We were now long of USDYEN. The recovery from there went to a high of 97.24, but I sent out an alert that we should take profits on part of the position at 97.05. Later on, when the USDYEN was around 96.70, I once again warned traders that we should get out of all remaining longs because the wave structure indicated another sell-off was ready to happen.The USDYEN subsequently declined to a new low of 95.02 before rallying strongly again. The key take away for you should be the following. Elliott Wave analysis is a great tool for traders. But you will be better off if you realize that it requires a lot more than an ability to compute Fibonacci ratios in order to make money at the market. All the best.
I have often stated in this blog that we should use Elliott Wave Analysis to aid us in our trading decisions. Some people mistakenly believe that the goal of Wave Analysis is to make accurate predictions, and spend a great deal of time verifying i ftheir count is correct. I am also aware that some analysts showcase their wave-counting skills when things go right. Wave Times is different. I would like you to see how my wave count in USD/YEN was actually wrong, but the direction was right. I have no hesitation is accepting that my counts are often wrong, although it will become evident only with hind sight. My approach to the market is to use this invaluable tool in making the right trading decisions. Start by looking at my Elliott Wave update of 23 July 2012. (An easy way to get there is by looking at the menu, under Forex, and choosing JPY). In that update, I has suggested to sell the USD on any recovery for a move down to 77.20 and eventually down to 76.70. The USDYEN went up to 79.66 on 20 August and then came down to a low of 77.11. Note two things here. (a) it did not reach 76.70 and (b) in that update I had counted the waves as a 5-wave downmove. Both are wrong. But did it matter to the trader? Of course not. He/she knew that 77.20 was a good level, and some action needed to take place there. In today’s new update, I present you with an altogether new wave count of USDYEN.
You can see that I am now calling the 77.11 low as the wave 2 low. As you know, corrections can never be in 5 waves, so my July wave count was wrong 🙂 The next chart shows you how you could have figured out where the first wave up would end.
In the third chart, you can see how I am breaking down the third wave into its components. I am also pointing out how I decided that we are in an extending third wave. This is a delicate point that you should take time to understand. Supposing I had labelled the green wave 1 as the 3rd wave, then the subsequent decline would have overlapped the top of Blue wave 1. That would have made me bearish if I was only looking at wave counts. But I would have been hesitant to buy after that. But the sharp recover that followed left me in no doubt that an extension was beginning. I had actually called up my clients and told then that we are now entering a huge bull run in the USDYEN, and importers from Japan should now be patient as the Yen was going to weaken significantly. If you had read my book “Five Waves to Financial Freedom” I have covered this phenomenon. If you have a short wave 3 and an overlap followed by a sharp rally to a new high, get ready for an extended third wave!!
The final chart is a close up view of the extending third wave. I am looking for a move to 88.40 at least, but the path to that could invove a pull back. Don’t sell to capture this correction. Instead, be alert to buy at a good support. Around 84.80-85.00 is decent initial support. As always you need to have stops on any position, but if you get stopped, be willing to jump back into the bull camp the moment it starts steadying and moving up again. I wish you the best of luck. (By the way, I am going to be in India to conduct a private seminar in the third week of January. Just thought will let you know) -Ramki (PS I posted this via email, after testing it out last week! Not sure if the formatting will appear correctly though…so please bear with me)
My last Elliott Wave update on USDJPY was a very long time ago. Of course, corporate treasurers who have been in touch with me had received guidance more often! I am presenting you three charts of USDJPY today with ELliott Wave counts marked clearly. Interestingly, wave 3 had extended and travelled 261.8% of wave 1. We then saw Wave 4 recover and correct wave 3 by 50%. The ensuing fifth wave is underway, and it looks to me like we will see it down to 76.70 in the coming days.
Allow for some respite near 77.20, but eventually we should break down.
Any rhetoric from BOJ about FX levels should be viewed as an opportunity to sell!
One of the most common complaints against Elliott Wave analysis is that the wave counts are subject to change, and also the same graph can be interpreted differently by different analysts. The trouble with all this is the accusations are true! Why, my own Elliott Wave count of USD/YEN published in this blog on 12th April is being changed in today’s update. But anyone who has been following my work carefully would know (and others can verify by going back and checking) that my old count worked perfectly fine in judging the direction, and that is what is important to the trader! Yet, I am changing my count today…The bottom line is we should use wave analysis as a tool that guides us in the market, not as a black box that will produce massive amounts of money.
Onwards now to discuss the outlook for USD/YEN using Wave analysis…
In an earlier update (12 Apr 2011) , when USD/JPY was at 84.10 and still climbing, I said that we will fail at 86.90 and come down in a 5th wave to 77.80. However the rally fizzled out at 85.54 and the currency pair went down to 79.55.
The recovery from 79.55 has been slow, but sure. We have a hurdle within a stone’s throw at 82.55 and again at 82.95. Only above this can a dollar bull breathe slightly more easily. Failure at 82.55 will set up what I will view as the final leg down for the bears. You should also take note that I now consider that the cyclical low was posted at 76.30 and the next bout of weakness will complete a potential wave 2, setting up the stage for a massive rally in USD/YEN later this year. -Ramki
The Elliott Wave analysis of USD/JPY presented to you on 12th April spoke about a deep downmove once the 4th wave was finsihed. I was looking for the fourth wave to be completed around 86.90, but the markets have come down from 85.50 levels. I have received some research from a leading investment bank saying they have gone long USD/YEN from 82.06 with a 3-month target of 86. Their stops are at 80.50 ( a risk-reward ratio of 1: 2.6). I am giving you that information just so that you are sware of the divergent views in the market. My own preference is for the USD/JPY to edge lower towards 80.90 as a first target. We shall see what happens there again.
Does Elliott Wave Principle work when Central Banks intervene? Remember that wave analysis is one of our tools for trading. We are not attempting to use this as a forecasting tool as much as we use it to decide ‘when’ to buy or sell (for a low-risk trade) and to determine how far a move can travel.
Central banks intervene when forex markets behave in a disorderly fashion. While everyone realizes that a strong Yen will only make it more difficult for Japan to rebuild itself, we have to remember that the Yen is a freely traded currency, and one test of the bottom is usually not enough. So I am inclined to label the current recovery as a 4th wave within an irregular correction. This would mean that USD/YEN will likely make one more attempt to the downside. It is perfectly possible that the BOJ (and its allies) will show up when we break below 78, setting up a potentially ‘failed’ fifth wave. In the meanwile, for the finance manager who has to make payments in Yen in the near term any recovery to 86.90 region will be a chance to buy some relatively cheap Yen, and maybe get some more sleep at night.
The Sterling Yen cross, or GBP/JPY has been a bit difficult to trade for most people in recent weeks. Clearly the easy-money days are gone. Yet, one can hardly recommend a buy here. The sentiment is overwhelmingly negative and we don’t know how much exposure UK banks have to the smaller Spanish Banks. Using Elliott Wave Analysis to study Sterling/Yen, my best guess now is we are tracing out an expanding diagonal triangle pattern. If we stabilize at 116.35/50 levels, then maybe one can profess the possibility of a recovery to 135.00. But later on we could come off once again. On the whole, anyone who is wanting to buy Sterling versus Yen is well advised to sit tight until the storm passes.
Here is the outlook for USD/JPY in the near term. The first chart shows you some classic relationships between alternate waves. Interestingly, the point “Y” is not the absolute low. We have allowed that because it looks like a spike in the price. The second chart of USD/JPY is an hourly chart. When one is attempting to arrive at the outlook for any instrument, in this case USD/JPY, he/she should pay attention to the personality of the waves. The hourly chart of USD/JPY clearly shows that after correcting the first upmove to 90.77 by a down move to below 87.60, the USD/JPY is moving in a manner that does not bear the personality of a third wave or even a C wave. So we have to conclude that soner or later the USD/JPY will likely come down some more. If we see a failure near 91.30, then we should join in as the down move starts.
The 50-point down move that happened from 88.48 to 87.97 is hardly a consolation when considering the 279 point move that followed. I hope you moved your stop to break even as advised, but even if you had not done that, your loss should have been no more than 20-25 points. In case you had not placed your stop at the recommended level, you have learned a valuable lesson from Friday’s move. That lesson is no one can be sure of the future. We can assign probabilities for a certain move happening, but one should ALWAYS take precautions in case the market does something differently. My personal experience over the years is when I get stopped, the move will usually go spectacularly in the opposite direction. This is actually a good thing, because (a) it keeps me in the direction of the trend for longer than most others and (b) when I get stopped, it is much easier to make back the loss because of the distance the opposite move will travel. Finally, if you are trading regularly based on my ideas, you should be very strict about my recommended stops, because those stops are often placed just above market pivot points. Good luck and speak to you tomorrow. Ramki