USD/JPY price prediction: impulsive move to end soon

The Japanese yen pairs rallied today yet again, as the USD/JPY made a new high above 125. From a technical perspective, the pair’s bullish breakout happened when it closed above 116.50 for the first time, and it did not look back ever since.

However, a five-wave structure appears on the larger timeframes, suggesting an impulsive wave nears completion. So how to trade the USD/JPY if the impulsive wave is about to end?

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What is an impulsive wave?

According to the Elliott Waves theory, an impulsive wave is a five-wave structure. In a bullish movement, three of the waves move in the same direction as the general trend, and the other two in the opposite.

The ones moving in the opposite direction are called corrective waves, and the rest are impulsive ones. In other words, an impulsive wave is made out of three impulsive waves and two corrective ones of a lower degree.

Eyes on the 2-4 trendline

The 2-4 trendline is key when interpreting the end of an impulsive wave. When the price action breaks below, the impulsive wave ends, and a correction has already started.

Also, the 5^th wave almost always makes a new higher high (if the impulsive wave was bullish). With today’s move, the USD/JPY made a new higher high, so traders should be cautious.

Where should the price move next?

After a five-wave structure, the market corrects. The Elliott Waves theory states that the market should retrace to the end of the 4^th wave as the minimum distance to travel after an impulsive structure ends. As such, a move back to 121 should follow after the price breaks below the 2-4 trendline.

But that is only the minimum distance the market should travel. For traders interested in what comes after, the answer lies in interpreting the bigger picture.

The impulsive wave might be part of a zigzag or of an impulsive wave of a bigger degree. In any case, booking profits at current levels might be the right thing to do, considering that a five-wave structure is evident.