Medium-Term Outlook For Dollar/Yen Suggests A Move Upwards To ¥100

A look at the medium- and long- term technical charts for dollar/yen signals renewed strength for the yen in the months ahead. This comes after a six month period of consolidation during which it has traded in an approximate range between ¥105 and ¥109.

July 1999 saw the continuation of a long-term dollar retracement from ¥122 that began after the yen touched an eight-year low of ¥145 in July 1998. The downtrend from this peak should hold the key to the yen's medium- term outlook.

The dollar once again failed to break through the upper trendline (resistance) at ¥109.30 on October 31, which suggests dollar/yen lacks sufficient momentum on rallies to sustain a return to 1999 levels. Consequently, dollar/yen should test its next significant support level at around ¥105.50 -- a rate at which the threat of further intervention by the Bank of Japan may begin to hang over the market.

The start of the formation of a valid (symmetrical) triangle in May has kept the yen within a narrowing trading range that is set to continue until early next year. Once this pattern is more than two thirds complete, dollar/yen is set for a downside breakout, thereby re-establishing the previous downward trend. Based on forward chart projections, this should take place in late February or March. A price target based on the "height" of the triangle gives an objective of approximately ¥100.0 to ¥101.0.

However, this move is subject to the breaking of the long-term rising trendline that began in May 1995. Consequently, the dollar may find some support at ¥105.

matthewc@prebon.co.uk