The dollar-yen, which is trading at multi-year highs has spent several weeks consolidating near the 95 level. The breakout above 95 has an upside target near 102. Speaking on CNBC's "Asia Squawk Box" on December 21 as the dollar-yen moved above 84 we set the upside resistance target near 95.
In notes at the end of February we set the upside target near 102. The resistance behavior near 95 is significant because in the future this provides a floor for any market retreat. The rise of the yen is dragging the Nikkei index after it. Watching the dollar-yen gives early warning of Nikkei behavior.
(Read More: Yen's Safe-Haven Status Called Into Question)
This rapid rise from 79 to 95 had the short traders twitching their trigger fingers. They ended up shooting themselves in the foot. The rise was very rapid, but it was not unexpected from the technical chart perspective.
The dollar-yen breakout above 79 in October 2012 was part of a long term fan reversal pattern. This pattern started with the peak price of 110 in August 2008. We have spent five years with the yen well below parity, but this is not the usual condition for the yen. A return to parity or above is the long term position of the yen from 1996 to 2008.
Resistance near 95 is well established. It acted as a support level in March and August 2009. It acted as a resistance level in April 2010. This has been a major feature of the market post-Global Financial Crisis. Now that this has been broken this suggests it will become a strong support level in 2013. When it was acting as a resistance level it meant the dollar-yen took several weeks of consolidation near this resistance prior to developing a breakout.