The behavior of this fast rally is defined by the pattern of trading band activity that has dominated the market since June 2013 and can be used to understand the pair's current behavior.
The dollar-yen has developed a down-sloping triangle. This is usually a bearish pattern. A close below 117 has a downside target near 113, calculated from the width of the trading band.
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The down-sloping triangle pattern on the dollar-yen is not always bearish, however. From January 2014 to June 2014 the dollar-yen developed a down-sloping triangle pattern. But this pattern moved sideways for five months using the lower edge of the trading band as a support level near 101 before breaking out above 105 in September 2014.
There is a reasonable probability that the dollar-yen will now move sideways from the current down-sloping triangle pattern and use 117 as a support level. In this situation the first upside target is a retest of resistance near 121.
The behavior of the dollar-yen chart is not fully developed, so it's not possible to decide how the down-sloping triangle pattern will develop. Traders will closely watch the behavior of the 117 support level. A close below 117 on a weekly chart would confirm the strength of the down-sloping triangle pattern, signaling the end of the uptrend.
If the dollar-yen develops a sideways consolidation pattern using 117 as a support level, traders will look for really and retreat behavior between 117 and resistance near 121. A breakout above 121 will signal the continuation of the longer-term up trend with the first target near 125. There is a greater probability that the dollar-yen will continue to move sideways between support near 117 and resistance near 121.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.