Nikkei 225: 13,300 holding despite strong short-term rally

Nikkei 225 has been enjoying a reasonable week thus far – price  has rallied from Friday’s lows on the get go this week, pushing from sub 12,600 to above 13,300 within 48 hours of trade. Price only suffered the first major bearish setback today, falling from 13,300 to 13,100 within an hour unprovoked. Prices bounced higher almost immediately though, but found slight difficulty in pushing above the 13,200 intraday support turned resistance before breaking above 13,200 after Tokyo Exchange’s scheduled lunch break.

Hourly Chart

Following the reclamation of 13,200, price seek out 13,300 quickly but was unable to push above the intersection point between the rising trendline and the 13,300 resistance. Currently price is pulling back a little, with 13,200 exposed. Should price break below 13,200 once again, we could potentially see current bullish bias eroding and a return of bearish pressure with last week’s decline getting back in play. A break of 13,000 may result in further acceleration and potential extension of the mid-term bear run.

Weekly Chart

Technicals from Weekly is more cheerful, with price finding support from the 61.8% Fib and currently trading above the 50.0% Fib. However it is important to note that the Fib references are taken from the rally YTD, rather than the base of the rally which is closer to November lows. Such Fibonacci lines may be considered arbitrary and unconventional, but there is some justification of relevance with Mar price action straddling around the 61.8% Fib. Even if we disregard the Fib lines, current price can still be considered bullish with current Weekly Candle forming a bullish engulfing, which is a good basis for a Tweezer Bottom bullish reversal pattern. Stochastic readings continue to point lower, but gradient of the curve is flattening, suggesting that bearish momentum is slowing. Despite Stoch levels are remaining higher than Oversold regions, recent history has showed us that peaks and troughs has been formed where we are now (only 2012 Jul minor peak is shown on chart) , hence there remain a possibility a trough can be formed here if past trends are repeated.

Fundamentally, there isn’t any recent improvement in Japan’s economy. Latest Export Data did show a strong increase M/M, but this can be easily explain away by the extremely weak Yen, and not a true representation of an improving economy. There hasn’t been any form of assurance from BOJ recently either, with key appointment holders trying to drum up bullish rhethorics without providing any solid plan of actions or reply for the recent dip. The latest G8 meeting also showed the first displeasure towards Abenomics by another economic superhouse – Germany. Merkel was less forgiving this time round, criticizing Japanese Monetary Policy openly and became the first Western leader that complained about  the artificially weakened Yen’s impact. There is a risk that Merkel’s open sentiment may encourage other countries to come out of the woodwork, and this would mean that BOJ will not be able to implement any further easing plans even if they wanted to – diminishing the long term prospect for Nikkei 225. This would also mean that recent rally may simply be a case of a “Dead Cat Bounce”, and not representative of a proper bullish reversal. Should this week truly end with a Tweezers Bottom pattern, and yet next week’s price fails to gain any bullish traction, the case of a technical rebound would be even stronger and the overall bearish tone will continue to live on.

More Links:
AUD/USD Technicals – Trading below 0.95 on short-term bearish pressure
EUR/USD – 1.338 to be tested again
GBP/USD – Pound Falls as UK Inflation Remains High

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.