AUD/JPY: Will The Pair Rally Higher?

AUD/JPY may be getting ready for a possible rally higher. In the one-hour chart below, it is clear that the pair found a bottom/support at the demand zone, signaling that the proposed wave 2 has terminated. The pair was in a correction lower from the July 23, 2021 impulse wave 1. The correction lower was in a 7-swing sequence, and we often advise traders that corrections are always in a 3, 7, 11, etc. sequence.

What is also demonstrated below is how the pair bounced higher and broke above the downward channel upper line, and most importantly it broke above the previous LH (lower high), signaling the 7-swing sequence is over. A bullish divergence pattern also formed at the Aug. 3, 2021 low, signaling a trend reversal of the correction move. 

From the demand zone, the pair bounced higher in a wave 5 move, forming a bullish impulse wave ((i)). The price pulled back, looking for the termination of wave ((ii)). Since the Aug. 3, 2021 low, the pair has reversed higher in a higher high/higher low sequence, meaning the pair is in a uptrend. Traders should now wait for the wave ((ii)) to terminate and to watch for a possible bullish divergence pattern to form at the termination of the ((ii)) wave. This bullish divergence pattern will signal a trend continuation, which is in an uptrend at the moment.

More confirmation that the pair will rally higher can be seen when the price broke out and above the Ichimoku Cloud pattern. A move above the cloud and above the wave ((i)) high would also signal that the wave ((ii)) was terminated and that AUD/JPY may push higher for wave 3. A move below the invalidation level (wave 2 low) would cancel the proposed rally higher. Only time will tell what AUD/JPY will do, but we remain bullish for now.

AUD/JPY One-Hour Chart: Aug. 6, 2021

Of course, like any strategy, there will be times when the approach fails, so proper money/risk management should always be used on every trade.