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Chris Svorcik

The USD/JPY looks ready for a bullish reversal after a long-term downtrend. Why?

Price action completed a bearish 5 wave pattern at the recent low (purple). Also, the bulls showed strong momentum at the start of the year 2021.

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Let’s review the chart and wave patterns in this article.

Price Charts and Technical Analysis

The USD/JPY is showing numerous bullish reversal signals:

  1. Divergence pattern between the bottoms (purple line)
  2. Completed 5 bearish waves
  3. Confirmed a falling wedge chart pattern

After that, the reversal signals created a large price movement up. This price swing showed strong bullish momentum (wave A).

The pullback has been mild and choppy. This is confirming a typical wave B (purple) of a larger ABC zigzag pattern (purple).

The confirmation of the ABC zigzag is when price action is able to break (green arrows) above the resistance trend lines (orange). Also a bullish bounce (green circle) could confirm the bullishness.

Only a deep retracement lower would pauze the bullish expectations. A break below the current bottom of wave B (orange circle) is a warning but only a break below the wave 5 bottom invalidates it (red circle).

In the image below, we see that price action has built 5 bullish waves (pink) within wave A (purple). It was followed by a bearish ABC (pink) correction.

The current upside seems to have 5 waves (grey) in wave 1 (pink). An immediate bullish breakout (green arrows) confirms the wave 3 (pink).

A retracement (orange arrow) could indicate a deeper wave 2 (pink) as long as price action stays above the 100% FIb. A deeper bearish breakout (red arrow) could test the deeper Fibonacci levels (blue box) for a bounce up.

A break below the bottom and deep Fibs invalidates the upside outlook (red circle).

Good trading,

Chris Svorcik

The analysis has been done with the indicators and template from the SWAT method (simple wave analysis and trading). For more daily technical and wave analysis and updates, sign-up to our newsletter

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