Land Of The Falling Yen

03/24/05 08:08:48 AM

by Arthur Hill

Even though the big trend remains up, a recent rising flag support break points to further weakness for the yen/US dollar.

Security: $XJY
Position: Sell

Like most major currencies, the yen is in the midst of a long-term advance against the US dollar. The weekly chart shows a clear rising price channel with a lower trendline that extends up from February 2002. As long as the lower trendline holds, the long-term trend is firmly bullish and a move toward the upper trendline is expected over the next several months or even years.

Despite the long-term uptrend, there are corrections along the way, and the yen looks vulnerable to further weakness before resuming its march higher. The currency formed a consolidation in December 2004/January 2005 and broke below the January low with a decline in early February. This lower low shows that selling pressure has increased enough to force prices below the previous demand point. Lower lows form because selling pressure is weaker than buying pressure.

Figure 1: Yen/US dollar. Despite the long-term uptrend, there are corrections along the way, and the yen looks vulnerable to further weakness.

Graphic provided by: MetaStock.

Graphic provided by: Reuters Data.

The yen/US dollar recovered after the support break but formed a rising flag, and the recent trendline break points to further weakness. The January-February 2005 decline was quite sharp and the rising flag alleviated the short-term oversold condition. Rising flags are bearish continuation patterns and the trendline break signals a continuation of the prior decline. The downside target zone is around 92-93, a level confirmed by broken resistance and the February 2002 trendline.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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