The yen has surged to an eight-year high against the U.S. dollar as the greenback takes a hit from expectations for aggressive Federal Reserve interest rate cuts to counter the widening credit crisis and the economy's fall towards a recession.
The yen's rise has hit Japanese shares, raised worries about the health of Japanese exporters and stirred speculation that authorities in Tokyo may resume intervening to block yen strength after having stayed out of the market for four years.
And Charting Asia thinks this is the perfect time to take a look at the dollar/yen trend.
The support and resistance character of the dollar/yen (USD/JPY) chart provides reliable potential pivot points for a trend. As the price approaches a known support level, traders can position themselves in anticipation of a change in the trend.
In an uptrend, such as that in May 2005, a move above the resistance level at 109.00 was a clear signal of up trend continuation. More recently, in the context of the downtrend, the move below 109.00 is a clear signal of downtrend continuation.
This framework allows traders to set accurate trigger points and downside, or upside targets. We start with the monthly chart to identify the strategic resistance and support framework. Then we move into a smaller time frame to look for validation of the monthly chart analysis.