Upon examining the daily chart of the Japanese Yen (JPY) Index, it’s evident that we’ve been witnessing a strong uptrend since January 13th of this year. However, the longevity of this trend is now in question, as several technical indicators hint at an impending correction.
I often approach market analyses through the lens of the Elliott Wave Theory (EWT). Without delving deep into its intricacies for the uninitiated, the core principle of EWT suggests that a dominant market cycle is typically succeeded by a correction.
Let’s consider some prominent signals on the chart that might indicate a potential shift from the uptrend:
- Completion of the EWT Trending Cycle: The EWT posits a 5-wave trending move to the upside. The conclusion of this move appears evident as it aligns perfectly with Fibonacci projections between 135.98 and 136.31 levels.
- Engulfing Pattern Formulation: The candlesticks on September 29th and October 2nd synergistically form an engulfing pattern. Notably, this pattern manifests right as we enter the ‘End of Wave 5’ (EOW5) projections, making it all the more significant.
- Top Divergence: Starting around August 21-22, there’s a noticeable divergence at the top. While the price continues to ascend, the momentum indicator shows signs of peaking. This divergence, coupled with analogous signals from the ATR indicator, might suggest that the end of this uptrend is nigh.
- Subdivision of the Final Wave: The last of the 5 waves reveals itself in a 5-wave subdivision. Historically, this usually precipitates a correction of some form.
While these technical indicators seem to suggest that the JPY is gaining strength, it’s essential to juxtapose this against the fundamental monetary policies laid out by the Bank of Japan (BOJ). One might argue that the current trend seems to counteract BOJ’s policies. However, it’s worth noting that traders often position themselves based on anticipated market movements, sometimes ahead of the full digestion of fundamental data.
Always keep your investment goals and risk tolerance in mind, and consider consulting with a financial expert before making any significant moves.