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USD/JPY: What a "Third" Elliott Wave Looks Like
The Japanese yen has been getting weak in a hurry -- a signature third-wave move.

By Vadim Pokhlebkin
Mon, 04 Feb 2013 17:00:00 ET
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According to a recent study, 

"Lui and Mole (1998) surveyed the use of technical and fundamental analysis by foreign exchange dealers in Hong Kong in 1995. These dealers stated that technical analysis was more useful than fundamental analysis in forecasting both trends and turning points.
 
(Source: ssrn.com, "Head and Shoulders above the Rest? The Performance of Institutional Portfolio Managers who Use Technical Analysis.")
 
Elliott wave analysis is a technical analysis method. That's what the editor of our forex-focused Currency Specialty Service, Jim Martens, used to turn bullish on USD/JPY on October 5, 2012:
 
"USDJPY fell beneath 77.657 as anticipated. We’re introducing a possible triangle from March 2011 with wave D bottoming. A wave E rally should carry USD/JPY near 82."
 
That proved to be a great call. Since October, the most popular trade in forex has been to sell the Japanese yen, buy the U.S. dollar.
 
As a result, USD/JPY, the exchange rate between the dollar and the yen, has been moving up in what an Elliottician would only refer to as a "third wave" (partial Elliott wave labels shown):
 

 
In the basic 5-wave Elliott wave sequence, third waves are "wonders to behold," to quote the discoverer of the Elliott Wave Principle, R.N. Elliott. Like the Energizer Bunny, third waves "just keep going." The USD/JPY rally is a great example.
 
In fact, the move has been so strong that last week it overshot a typical price target for third waves: a Fibonacci 1.618 times the length of wave one. On the chart above, you can see that Fibonacci price target marked in blue.
 
But the yen's losing streak may be hitting a pause. In his latest Currency Specialty Service intraday update, Jim Martens warns subscribers "not to chase" USD/JPY higher, at this point
 
You'll find our latest USD/JPY price targets inside Currency Specialty Service online now >>
 

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