Chart analysis shows dollar-yen has downside target of 100

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Japanese Prime Minister Shinzo Abe needs more than three arrows to make progress with the dollar-yen.

This currency pair is doing a five step polka. Unfortunately, all the steps lead to a potential downside target of 100, which is great for short-side traders but not so encouraging for Abe.

The steps in the dance are created by well-defined trading bands. Every time the lower edge of the trading band is broken, the market moves quickly to the next, lower step. The dance is currently between 105 and 109 but a fall below 105 puts the next support level near 100.

Long-term analysis of the dollar-yen chart shows that the dollar-yen moves within well-defined trading bands. The lower edge of the upper trading band is near 117. A fall below this step 1 level in February set an immediate downside target near 113, which was rapidly reached in a single downwards move. Weak consolidation at this level was step 2 of the dance.

The base of step 3 had a downside target near 109 but historically this is a weak level so during the dollar-yen's rise this level offered little resistance. It's a minor point historically, so there was a high probability it wouldn't offer good support in the current fall, which proved to be the case.

How likely is a yen intervention?

Now the pair is heading towards the base of step 4 at 105.The 105 level is the upper level of a well defined and psychologically important trading band between 100 and 105.

All these levels use a projection of the trading band width to establish each step in this downward dance. The pattern of well-established trading bands sets up the strategic trading pattern, which remains bearish.

This calls for trading market retreats as these are most likely to be a continuation of the falling trend towards 105 and then 100. We use the ANTSSYS trade and analysis method to identify the opportunities as the falls develop, trading with a tight stop using a customized ATR indicator.

One warning for short traders, though: The downtrend pressure ends near 100 and is most likely to be followed by a period of consolidation. This changes the trade from a simple short to a more complex rally-and-retreat environment as the market moves sideways.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, available from He is a regular guest on CNBCAsia Squawk Box and a speaker at trading conferences in China, Asia, Australia and Europe.

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