Dollar Breaking Narrowest Yen Range Since 1987 Crash Aftermath

The dollar is breaking its narrowest trading range against the yen since the aftermath of the stock-market crash of 1987 as Federal Reserve officials signal they’re moving closer to raising interest rates.

A technical-analysis measure known as the 14-day average true range, which takes into account the differences between intra-day highs and lows, fell to 0.299 last month, the least since October 1988. It climbed to 0.4803 today. The greenback is set to test 104.34 yen, or what is considered a 76.4 percent Fibonacci retracement from 105.44, its 2014 high reached on Jan. 2, according to JPMorgan Chase & Co.

“There’s a good chance that dollar/yen can continue to rally,” Niall O’Connor, a technical analyst at JPMorgan in New York, said in an e-mail yesterday. “A break above that retracement level along with the April high should confirm a retest, if not break of the January high.”

The dollar was little changed at 103.84 yen at 11:48 a.m. in New York trading. The U.S. currency has weakened 1.4 percent this year against its Japanese counterpart.

Minutes of the July Federal Open Market Committee meeting released yesterday showed Fed officials raising the possibility that they might increase rates sooner than they anticipated as they approach their goals for full employment and stable prices. Some participants “were increasingly uncomfortable” with forward guidance on keeping rates low for a “considerable time,” according to the minutes.

The jobless rate was 6.2 percent last month after falling in June to a five-year low of 6.1 percent, a level policy makers had forecast it wouldn’t reach until the end of the year.

Moving Averages

Other measures followed by technical analysts who study charts of trading patterns to forecast changes in a security or currencies suggest a stronger dollar.

The weekly moving average convergence-divergence, or MACD, for the currency rose above its signal line, a nine-day exponential moving average of the MACD, for the first time since January, generating a buy signal. When the MACD last crossed above the signal line in November, the dollar rose to its five-year high of 105.44 in four weeks. The bullish crossover was also seen in the third week of October 2012, preceding the currency’s 33 percent rally.

The Average Directional Index for the yen against the dollar, a measure of trend strength, rebounded after bottoming at 11.9 on Aug. 19, supporting the 1.2 percent jump in the past three days.

Fibonacci analysis is based on the theory that securities tend to rise or fall by specific percentages after reaching a new high or low. It is based on a formula developed by a 13th century mathematician, Leonardo da Pisa, known as Fibonacci, who discovered the sequence while studying the reproduction rate of rabbits.

Before it's here, it's on the Bloomberg Terminal.