Nikkei 225 – Back below 50.0% Fib

Price has fallen significantly today during Asian hours, breaking the 13,000 significant support, sending price closer to the weekly lower. The reason for the decline is not immediately obvious, and market watchers were quick to attribute it to a continuation of risk aversion flows from the US trading session. S&P 500 traded lower, closing at -0.84%, while Dow Jones Industrials went down by the same percentage, but went 1 step further by closing below the 15,000 psychological significant point. However, it is worth noting that Futures were actually stabilizing above 13,000 during the decline in US stocks, and the real push came in a few hours AFTER the opening of Japanese stock exchange, which suggest that today’s decline has another factor ON TOP of the negativity surrounding US.

Hourly Chart

Looking across newswires and the economic data docket, there isn’t anything significant other than some peripheral data on foreigners stock and bond purchases. It seems that the amount of holdings of Japanese Bonds by international investors has decreased by 280.0B Yen, not a significant amount but certainly showing a disturbing trend. The decline is more than double that of previous month’s 119.7B Yen, and suggest that international investors are starting to be wary of JGBs, not a good sign of confidence in either Abenomics or the stability of Japanese economy. This would also explain why JGB long term yields have increased significantly recently despite increasing purchases by BOJ. This may be the smoking gun that we are looking for – not the decrease in bond holdings by foreigners, but the fact that market is no longer confident in BOJ’s ability to keep the sinking ship afloat.

From a technical point of view, it make sense that bearish acceleration took place after 13,000 is confirmed to be broken. Price traded sharply lower and touched 12,600, the lower end of the consolidation zone found on 7th Jun. Price rebounded slightly, with bulls unable to hold onto 12,800, making 12,600 at risk of breaking once again.

Monthly Chart

Bearish pressure on Monthly chart is back once more with current candle trading back below the key 50.0% Fib retracement. If price is able to extend itself lower below April’s opening levels, we could see a strong bearish reversal in July which may bring us to 38.2% Fib and potentially beyond.

BOJ Governor Kuroda said today that he and Prime Minister Abe has spoken, and the outlook on Japanese economy continue to look positive and that both of them believe the market will “settle down” soon. This has done little to comfort the market which has now closed at 20% below May’s highs, with various newswires and publications suggesting that a full bear trend is ongoing now. Time will tell whether Kuroda is right, but currently it is hard to imagine Nikkei 225 recovering from here with global equities pointing lower too.

More Links:
GBP/USD – Moves Higher to Resistance Level at 1.57
AUD/USD – Meets Stiff Resistance Around 0.95
NZD/USD – RBNZ Holds Rate, Multi-Year trendline back in focus

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