Japanese Yen: The Star of the Show

By Vadim Pokhlebkin

Since Valentine's Day, the euro/dollar has shown us no love. If not for this morning's impulsive rally (Feb. 23), the EUR/USD would have moved nowhere for over a week. But that's OK, because the real action has been elsewhere lately: It's the yen that has stolen the spotlight.
Yesterday the yen dropped to record lows against the euro. Against the USD, it's not doing too well, either, having reached lows it hasn't seen in a couple of years. "Fundamental" explanations as to why forex traders have been using the yen as their punching bag are easy to find online. What interests us is the technical picture in the EUR/JPY – specifically, the Elliott wave picture.
The Wave Principle teaches that usually, the third wave in the basic 1-2-3-4-5 Elliott wave sequence is the strongest and longest. Any time you see a violent price move, chances are you're dealing with a third wave. By the sound of it, this week's action in the EUR/JPY certainly fits this description, doesn't it?
It does. In fact, if you look at this chart EWI's forex analysts posted late Thursday evening (Feb. 22), you'll see that the EUR/JPY has indeed been moving up in a small-degree third wave. The rally from 1.5625 is especially fitting because of its "explosive" look:

What's more, "The rally from 1.5625 looks like five waves on an hourly chart,".

Five waves meant that the impulsive move in the EUR/JPY was likely over. What was due for the EUR/JPY was an A-B-C correction – a pullback – and we got it this morning (Fri., Feb. 23).
The bigger question is, where is this pair going after the pullback is over? Well, you see those converging trendlines in the chart above? That's a so-called ending diagonal triangle. They always appear in the final, fifth waves. And, as the Elliott Wave Principle – Key To Market Behavior* puts it, “In all cases, [ending diagonals] are found at the termination points of larger patterns, indicating exhaustion of the larger movement...”