AUDJPY: Ending Diagonal Pattern; A Reversal on the Horizon.

Short

Australian Dollar / Japanese Yen (FX:AUDJPY)

Updated

FX:AUDJPY Australian Dollar / Japanese Yen

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The advance from Mar 24, 2023 low of 86.06 subdivides into five waves. Notice that this price action contains overlapping waves that contract and form a wedge shape. That is the emblem of an ending diagonal which cues a swift and dramatic reversal on the horizon.
According to Elliott Wave guideline, the expected reversal is projected to reach at least the point where the diagonal initiation occurred, and potentially extend beyond. In this instance, the relevant level is identified by the conclusion of wave ((b)) at 86.06.

A salient attribute of ending diagonal is that all initial subwaves form either a single or multiple zigzag patterns. Waves (i), (iii), (iv) and (v) appear to be single zigzags, while wave (ii) is a double zigzag. Wave (v) often makes a throw-over (a brief break beyond the trendline connecting waves (i) and (iii) ). A throw-over suggests a diagonal has finished. Once price action pushes below the trendline connecting waves (ii) and (iv), we would have compelling proof that the diagonal has ended. The next event should be a swift move to at least 86.06 and probably beyond.

The wave count is not the sole basis for considering a short position. Beyond what is illustrated, there has been a divergence in prices and MACD since June 16, 2023, suggesting a diminishing upward momentum and indicating a weakening uptrend. Despite new highs in prices on November 16, 2023 and February 21, 2024, MACD did not follow suit. This bearish divergence frequently foreshadows a potential downturn in prices. (Insert MACD on your chart and draw a trendline connecting the highs)

Trading Plan
Entry: Sell above wave (iii) high.
Protective Stop: 100.95; the price level at which wave (v) would be longer than wave (iii),
which would render our diagonal scenario invalid. As a rule, within a
contracting ending diagonal, wave three is always shorter than wave
one, and wave five is always shorter than wave three.
Target: 86.06 and below
Risk-Reward: 1:5

Comment:

The recent impulsive decline could be the onset of the sharp reversal. For this bearish outlook, our protective stop at 100.95 should not be violated.
If price action pushes below 95.49, we will have strong evidence that the diagonal has ended and a reversal is in force.

Comment:

On 8 H time frame, 96.40 is the level we'd want to keep our eyes on. If prices get below, it would be an initial indication the diagonal ended at 99.06.

ALTERNATE COUNT
Wave ((4)) of c of (iv) underway from 99.06 high.

BOTTOM LINE
Bearish below 100.95

Comment:

97.34 is the level we would want to keep our eyes on. If prices push below, it would be an initial indication wave ((2)) ended at 98.21 as a Regular Flat, wave ((3)) to the downside underway.

Comment:

Price broke below 97.34 which is an indication wave ((2)) ended at 98.21 as a Flat correction setting the stage for wave ((3)) to the downside.

wave ((3)) = 1.618 X wave ((1)) at 95.45

Lower protective stop from 100.95 to 99.06

Comment:

Zigzag wave 2 underway from 96.89 with a target 97.88; the 78.6% retracement of wave 1.

Comment:

Talk of sideways price action! The count favors a Flat wave ((2)) with wave (c) unfolding as an Ending Diagonal.
Alternate count suggests wave ((3)) underway from 98.21.

Comment:

The diagonal has not ended yet. Wave (v) from 93.70 is unfolding as double zigzag. Raise our protective stop to its initial level, 100.95; the invalidation level of wave (v).
Review the analysis on Feb 25.

For those looking for an Entry.
Trading Plan
Entry: Sell above wave (iii) high.
Protective Stop: 100.95; the price level at which wave (v) would be longer than wave (iii),
which would render our diagonal scenario invalid. As a rule, within a
contracting ending diagonal, wave three is always shorter than wave
one, and wave five is always shorter than wave three.
Target: 86.06 and below
Risk-Reward: 1:5

Comment:

Price broke above (i)-(iii) trendline which is often an indication wave (v) has ended (Throw-Over). Price action MUST stay below 100.52 to validate the diagonal scenario.
Notice prices and MACD have been diverging since June 19, 2023.-an indication of decreasing momentum, signaling a weakening uptrend. While AUD/JPY made new price highs, MACD did not. This bearish divergence is often a precursor to a downturn in prices.
So, a bearish Elliott Wave Pattern (Ending Diagonal) combined with a bearish divergence between price and MACD make a stronger case to short this pair.

Comment:

Always use other forms of Technical Analysis to either challenge or support your analysis. Let's look at one my favorite; Japanese candlesticks. An Evening Star, is a bearish candlestick pattern found at market tops and predicts future reversals to the downside.
See this classic candlestick reversal pattern by clicking the link below.

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