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© Reuters. EUR/JPY bullish momentum should continue according to Elliott Wave theory
Invezz.com – Calm reigns in financial markets. Yesterday, the Wall Street Journal reported that volatility had dropped significantly since the banking crisis in the United States.
One may even wonder: what banking crisis? S&P 500 volatility just hit its lowest level in 15 months. Additionally, oil volatility is at an 18-month low. Also, FX volatility is the lowest in a year.
This is bad news for speculators. When the market is not moving, there is not much to do.
But some markets moved more than others. JPY pairs have bucked the trend of low volatility in the forex market. One pair in particular is poised for more gains: the .
According to the Elliott Wave theory, the EUR/JPY cross ended with a continued correction. What follows should be an extended third wave that should only be completed by a rally well above current levels.
TradingView EUR/JPY chart
EUR/JPY has completed a rolling correction
A continuing correction has one main feature: it ends above its starting point in an uptrend. In other words, it means that the Elliott wave that follows, usually the third extended wave, starts well above the end of the first wave.
Another feature of such a correction is the extended wavelength. Instead of the classic extension of 161.8% compared to the length of the first wave, this time the length of the third wave should exceed 261.8%.
Finally, a running correction usually ends with a triangle, one that is contracting. In this case, the EUR/JPY exchange rate completed a triangle when the US banking crisis hit.
Therefore, while for some traders the drop in the JPY pairs was seen as evidence of turbulence in the financial markets, for others it represented an opportunity to buy at better levels.
What to expect next from the EUR/JPY crossover?
First, the market should continue to go higher and break above the upper border of the bullish channel seen on the above chart. That is mandatory for the third wave and such a break confirms Elliott’s correct setup.
Next, the rally should continue towards 160 and higher.
Indeed, such a move is not going to happen overnight. But any corrections from this point on should be superficial and an opportunity to charge a bit more for the 165 target.
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