In just about two days, USDJPY rallied toward the 110.7-111 resistance zone. At this level as well, it seems a corrective pattern is complete and price may resume downside unless there is a strong break above 111.6. Based on 13 September USDJPY Elliott wave analysis and trade idea we look at the complete pattern and how price should react to validate it.
Elliott wave theory discussed about 3 major corrective patterns – Zigzags, Triangles and Flats. These patterns have varieties. Like the Flat pattern has three types – Regular, Expanded and Running Flats. Of course , they don’t occur as usual as the Zigzags and Triangles. It seems the 2-day USDJPY rally is just about to complete an Expanded Flat pattern.
In expanded flats, wave b of the 3-3-5 pattern terminates beyond the starting level of wave a, and wave c ends more substantially beyond the ending level of wave a.
From 114.55 to 104.77 (the blue broken line), a longer term double zigzag is projected if price resumes downside. Between 108.65 to 107.3 and the last two days rally is seeing price completing an expanding flat pattern. The sub-wave c of (x) could still rally to 111.6 or below before the pattern finally complete. This thus makes 110.7-11.6 a price reversal zone. How price reacts at this level will be very important. A strong break above 111.6 will make us reconsider our view. If price goes as expected, how can we take advantage? The chart below gives the required information.
The last leg is an impulse wave and a break below 109.85 could be enough to send price further downwards. The following is our trade bias.
Sell USDJPY at 109.8
Stop loss/Invalid: The top before the break below 109.85. We will ignore this setup if price rallies above 111.6 (111.6 is the maximum SL expected)
Target 1: 108.5
Target 2: 107.26
Target 3: 106.56
Final target: 105
If price breaks above 111 – 116, we will consider a new entry strategy and share with you here. Please know that trader’s discretion applies.
Let’s know your views in the comments box below