USD/JPY ? Major Reversal Ahead… But When Exactly??

3 min read
HubertM

HubertM

Author

Dear Traders,

The USD/JPY has arrived at a critical juncture. The bigger picture points towards a major bullish reversal.

But the question is… can we know when a definitive turning point will occur?

This analysis will review recent price-action of the USD/JPY and discuss price scenarios for the week ahead.

Longer-term wave analysis of the USD/JPY (see chart above) is making a good case for a major bullish reversal at this point in time. The complex correction since Dec 2016 looks to be complete now. A move above 118.75 (the high of Dec 2016) is now realistically on the cards over the coming months.

Recent Price-Action Analysis

The last part of the long-term correction was a bearish impulse, which is also looking to be in its very final stages, but last week’s price moves still leaves the door open for several scenarios to play out…

Scenario 1 (white lines): The wave count would be the most ‘tidy’ if another mild lower low were to appear over the coming trading days before a bullish reversal sets in. Momentum indicators support this scenario, which peaked at the 16th Feb low.

Scenario 2 (black lines): There is also a legitimate Elliott wave count scenario, in which the low of 16th Feb marks the end of down trend already. Wave structure since the bullish bounce is still vague at the time of this writing and does not confirm either scenario yet.

Scenario 3 (grey lines): Although I assign the least probability to scenario 3, we also could still see an extension of bearish momentum that drags the USD/JPY substantially lower. Cross-market correlation however suggests that this is less likely.

Conclusion

It’s probably best to stay put for the time being and let more price-action form that gives further weight to one of the 3 scenarios. A distinctly strong bullish bounce that produces a sudden vertical price movement in the form a large 4hour candle should be the first warning sign that downtrend is over. No doubt the scheduled fundamental events this week (Fed Chair Powell Testimony and NFP) will be key trigger moments, after which the course is going to be set for the USD. Watch price closely in the lead up to these events, as early indicators for one or the other scenario may appear prior to the news events.

All the best along your trading journey

Hubert

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