Elliott Waves analysis: USD/JPY is pushing higher, but the upside is limited

It is a slow trading day for financial market participants. After all, this is the Non-Farm Payrolls (NFP) week, known for its low volatility until the actual data is released.

Moreover, the UK banks were closed today in observance of the Summer Bank Holiday. Therefore, poor liquidity resulted in markets going nowhere during the European session.

However, one currency pair in this “La La Land” deserves special attention – USD/JPY.

I wrote about it at the start of the trading month here. My take was that USD/JPY will likely go first to 152 before dropping to 132. I still stand by that forecast.

The yen has been under pressure for the entire month so far. It was sold aggressively against the US dollar despite the Bank of Japan tweaking the yield curve control program a bit.

The Jackson Hole symposium brought nothing new, as the Bank of Japan chief, Kazuo Ueda, noted that Japan’s inflation is still a bit below target.

But the upside seems limited for now, at least judging by the Elliott Waves analysis.

USD/JPY Elliott Waves analysis – interpreting a limiting triangle

Investors bought the Japanese yen when the US regional banks were in trouble in March. The yen is known as being a safe-haven currency, so their reaction was only logic.

But every attempt to break below 130 ended up in failure. As a result, the market formed a limiting triangle – a powerful pattern that, as the name says, limits the upside.

One should focus on the rally on the USD/JPY pair before the 2023 pullback. According to the Elliott Waves theory, it was the 3^rd wave of an impulsive structure.

Moving forward, the limiting triangle calls for caution regarding the upside. That doesn’t mean that the USD/JPY pair will not make a new marginal high – it will.

Instead, it means that the market forms a terminal impulsive structure as the 5^th wave of the impulsive move.

All the segments belonging to a terminal impulsive wave are corrective. In other words, the Elliott Waves trader should expect zigzags and flats and double and triple combinations for the first segment of the terminal impulsive structure.

A quick look at the chart above tells us that the 1^st segment is likely over. A double combination might end right now, above 146.50, or the market might still consolidate in a triangular pattern.

In both cases, a move lower is in the cards, 140 being the likely target.