Related Topics
Trading , Currencies
     

The U.S. Dollar Vs. the Yen: The Prodigal Bear Returns… But For How Long?

In mid-July, all "fundamental" signs said the USDJPY would "continue to defy gravity." Famous Last Words!

by Nico Isaac
Updated: August 05, 2022

For the last 2 weeks, I've been binge-watching one of those cringe reality TV shows in which 10 survivalists are dropped into a remote arctic region where the primary inhabitants are mountain lions and 800-pound Grizzly bears to see who the last woman or man standing will be.

In the last episode, one contestant films herself excitedly foraging what she believes to be cow parsnip roots and roasting them over her open campfire. A few hours later, though, she turns the camera back on, looking pale and clammy. She shakily explains that, after coming down with severe nausea, fever and dizziness, the root may have been water hemlock, a poisonous root nearly identical to cow parsnip.

She chews on a lump of toxin-absorbing charcoal and hopes its enough to avoid a much worse outcome. (I won't reveal any spoilers!)

Few of us would make it one day on a show like this. (Personally, I'd tap out after 15 minutes.) But what about the fight for survival in the often brutally volatile terrain of forex markets? Here, traders must use the tools they've been given to identify a market's trend. And to do so incorrectly could have dizzying consequences.

Mainstream analysis uses the "fundamentals" tool of forecasting. It's supposed to work like this: News events and economic data signal whether prices are ripe to rise or fall. But all too often, it leads to trend misidentification.

Take, for instance, the recent performance in the U.S. dollar/Japanese yen forex pair. Since 2022 began, the USDJPY has outperformed every major currency pair, and on July 14, the buck touched its highest level against the yen in the 21st century.

According to the "fundamental" guidebook, the USDJPY's winning streak would continue to be supported by external forces, leading to a positive bullish I.D., care of the following news items.

July 13 Forex.com:

"USDJPY continues to defy gravity...The conditions for a higher USD/JPY have been perfect. US inflation continues to rise above expectations (and at an alarming rate), whilst the Fed's 50 and forthcoming 75-bp hikes are doing little to dent it.

"But we also have the BOJ fixated on an ultra-loose monetary policy, with both the central bank and government of Japan openly backing a weaker yen."

July 14 Bloomberg:

"Don't fight it, it's not the right time to go against dollar strength yet."

July 12 Daily Forex:

"The environment is vulnerable to dollar buying and yen selling given the sense of security that there will be no turmoil in Japan for a while and amid expectations of a Fed rate hike to combat inflation.

"It wouldn't be surprising if USD/JPY tested 147 or 150 in that direction."

And yet, despite the positive bullish I.D. of the USDJPY's trend by "fundamental" experts, the pair peaked on July 14 and turned down in its first sustained sell-off to 6-week lows in recent memory.

In turn, the mainstream tools left many chewing on the wrong side of the USDJPY opportunitree; indigestion was prolific. But fortunately, there were other ways to identify the pair's price trend: namely, Elliott wave analysis.

On July 16, our Currency Pro Service showed this labeled price chart of the USDJPY, on which analyst Michael Madden identified a textbook Elliott wave diagonal as complete at the recent July 14 high.

USDJPY - US Dollar - Japanese Yen - 4 hour - 7-16-22

The paramount guidebook Elliott Wave Principle -- Key to Market Behavior defines the diagonal as a five-wave motive pattern "in which all the waves are 'threes,' producing an overall count of 3-3-3-3." Most important, diagonals imply one thing: "dramatic reversal ahead."

(Pictured here: Diagonals preceding bearish and bullish reversals)

Diagonal Triangles

In the July 16 Currency Pro Service, Michael Madden confirmed the USDJPY's next move out of the diagonal would be down:

"Near-term, we are watching to see if wave 5 is now unfolding as an ending diagonal. Under this current modeling, we can count five waves completed at 139.39.

"Breaking down from the ((ii))-((iv)) boundary in a decisive manner will be bearish evidence."

This next chart shows the sharp sell-off to 6-week lows on August 2 that followed:

USDJPY - US Dollar - Japanese Yen - 4 hour - 8-2-22

Of course, not all Elliott wave forecasts work out like this, and forex trading carries immense risk.

But our Currency Pro Service gives traders a figurative piece of charcoal in the form of critical support and resistance levels to help absorb that risk and spot high-confident "windows of change."

See below to learn more.

From Dollar/Yen to Euro/Dollar: Your Opportunity Awaits

Is there a way to survive the volatility in forex markets?

Yes. But even more than that, there's a way to thrive: Having an objective model for identifying and interpreting the near-, and long-term trends underway.

Our forex-focused Currency Pro Service publishes intraday, daily, weekly and monthly analysis of the worlds leading forex pairs -- so you can experiment with the timeframe and market that suits you best.

Subscribe today!

4 ways EWI's Forex Pro Service lets you trade with more confidence

If it's an important pair, you'll be on top of it

1. You Get Around the Clock Analysis for 11 Popular FX Pairs

Your Currency Pro Service subscription puts a team of Forex experts in your corner. Their goal is to make sure that day-by-day, hour-by-hour, you have the very latest Elliott wave forecasts for the FX markets that matter most -- whether you need it at 2am or 2pm. This intensive coverage includes 11 of the most popular dollar and cross rates:

Dollar rates: EURUSD, USDJPY, GBPUSD, USDCHF, AUDUSD, USDCAD
Cross rates: EURGBP, EURCHF, EURJPY, GBPJPY, AUDJPY

2. You Get "Opportunity-Now!" Alerts

Your Pro Services Forex team scours the FX markets for dramatic set ups for you. Each is a market that has reached a low-risk, high-reward juncture in its wave pattern. You'll find them in the Opportunities section of your Pro Service portal.

3. You Get Essential Weekly Perspective

Once a week, your Forex analysts record a video to help you prepare for the week ahead. Sit back and watch as our analysts reveal the markets that are on their radar and that should be on yours. Then, each week market veteran Murray Gunn posts his Currency Insights column calling your attention to an over-looked but powerful wave-generated undercurrent moving the money markets. These videos and columns add up to unparalleled, essential perspective for all serious FX traders.

4. You Become Part of an Exclusive Community of Savvy Elliott Wave Traders

Our Forex team is your Forex team. If you have a question about the Wave Principle or our analysis, just send us an email. We'll update the next post or video so you and your fellow subscribers get the clarity you need.

Or, if you're having a hard time grasping an Elliott wave concept, often we can suggest a resource for you to read or watch.

We know we're successful when you understand the Wave Principle and our analysis. We'll do what we can to make sure that happens.

Note that we do not provide individualized services, assistance or advice concerning investing or trading in any way.


Start Your Subscription Now

Personlize your FX Pro Service package to get the coverage you need. You pay only for the markets and timeframes you order, and the more you select, the less you pay for each one. Try our selection tool to see how it works.

Market Trek: Why Has EUR Been So Weak? Think in '8s'

There is a curious 8-year cycle in the euro's strength and weakness. And now that it's near parity with the U.S. dollar, it's worth talking about a curious pattern in the dollar's bouts of strength, too. Watch your Market Trek host Brian Whitmer show you a couple of eye-opening charts with big implications for global stability. (Brian's destination today is Madrid, Spain.)

BOOM! The Supersonic Indicator

Supersonic flight is making a comeback. And the timing couldn't be better. Our Head of Global Research explains why.

Euro/Dollar Parity: A "Sight Unseen" in 20 Years. But NOT a Sight Un-Foreseen!

In January 2021, the euro was on fire, soaring to its highest level against the U.S. dollar in three years. Mainstream forex experts saw a fixed image of a giant euro bull as the demand for the "safe-haven" buck dipped amidst a widely expected post-pandemic recovery. But that image looked a whole lot different through the telescope of Elliott waves.