Dollar-Yen to Fall to 80, Then Consolidate: Charts

The dollar continued its slide against the yen on Wednesday, moving within sight of a 15-year low versus the Japanese currency.

Just how low will the dollar-yen go?


The weekly dollar-yen chart shows a break below the support level at the lower edge of the trading band between 87 and 94. More significantly from a technical perspective, is the development of a series of parallel trend lines. This is not an Andrews Pitchfork pattern, although it looks similar.

Each trend line defines a new valuation of the dollar-yen relationship. The long term central trend line acts first as a resistance point, and then more recently, as a support point. Together, the points show a long term consistent change in the dollar yen value.

The importance of the drop below support is the way this changes the nature of resistance. This makes it more difficult for the price to move back above 87. Additionally, the parallel upper trend line imposes a sliding resistance cap. Any break above 87 immediately runs into resistance from the trend line near 89. This limits the uptrend in the dollar-yen.

The downside is more dangerous. A fall below the central trend line has high probability of using the lower trend line as a support level. On current projections this has a downside target near 77. But there’s no need to paranoid, as this is an extreme technical projection and there is a support level between the current value and this extreme.

The support level is calculated by taking the width of the trading band and projecting it downwards. This gives a downside target near the historical low of 80. The dollar yen can slide gently down the central trend line until it reaches the 80 support level. This provides the opportunity for a support rebound with resistance defined by horizontal resistance near 87 or by the upper trend line.

This chart does not suggest a change in broad trend direction. The trend line support and resistance features will define the extent of rally and retreat activity, but they do not signal change in the long term direction of the trend. The target level is 80 and then traders will watch for consolidation behavior.

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 CNBC's Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

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