This Great Graphic is a weekly bar chart of the dollar-yen exchange rate. It shows a three-year downtrend line (white line). The US dollar had popped above it last month, but this proved premature and has not closed about it for a month. The trendline is found near JPY111.55 now.
Connecting the 2016 dollar lows and the low from late March this year is a red line. It is found near JPY105.60. Together both lines mark a large triangle pattern dollar-yen exchange rate tracing out a large triangle pattern. The pattern is susceptible to false breaks like the one seen last month.
The triangle is often seen as a continuation pattern. Recall that in 2011 and 2012 before it appeared likely that Abe would be elected, the dollar has slumped to below JPY75.50. Even as late as September 2012, the dollar we still below JPY80. It is from there that dollar ran up to nearly JPY126 in June 2015. The dollar pulls back in 2016 and retraces a little bit more than 50% of that Abenomics-inspired rally and it is that low that the bottom of the large triangle begins.
However, as the dollar approaches the apex, the pattern loses its gravitas. Yet, the apex is not found until Q1 2019. There is plenty of time. If the dollar is unable to break through the top, it may have to move lower, and the technical indicators would seem to favor that scenario.
Alternatively, the dollar could continue to move broadly sideways. After initially weakening at the start of the year, the dollar appeared to enter a JPY105-JPY108 range. After the new fiscal year began (April 1), the dollar entered a new range of roughly JPY108 to JPY111. The dollar moved higher here in Q3 and posted a high in mid-July near JPY113.20. We had anticipated a new three-yen range of JPY111 to JPY114. However, the unwinding of risk trades seems to have challenged this idea, and the dollar fell to almost JPY110 yesterday.
Without a change in Turkey's policies that would encourage investors, it is difficult to see today's move having legs. And if the pressure on the emerging markets more broadly is renewed after today's respite, the dollar may find it difficult to recover much more against the Japanese yen. Initial resistance is seen in the JPY111.15-JPY111.35 area.