Nikkei 225 – Breaking below Kumo on Hamada Comments

Nikkei 225 took a strong beating today due to Shinzo Abe’s advisor Koichi Hamada shooting his mouth off at the wrong time. Prices collapsed due to a combination of fear that the impending Sales Tax will cause economic slowdown, and also the fact that Shinzo Abe’s Liberal Democratic Party’s quest to House Majority this Sunday has just been made slightly more difficult unnecessarily.

Technicals did not help matters, with prices looking a tad bearish following yesterday’s rally brought about by Ben Bernanke’s dovish affirmation. Price failed to break the wedge top despite the strong bullishness, and with this failure, a pullback was already in the cards. Futures prices were already heading slightly lower before Nikkei opened, and were heavily primed to exaggerate any bearish endevour this morning. Unfortunately for bulls who were hoping to continue yesterday’s bull run, Hamada’s gaffe allowed bears to seize the day, with prices dip below the key 14,450 figure at one point, breaking numerous other significant support levels along the way.

Hourly Chart

By breaking the 14,750 swing high, the breakout yesterday has been invalidated. Bears went a step further and broke the rising Kumo with ease, underlining the strength of current bearish momentum. However, the ability of price to stay above the lower wedge line is a good sign that bulls are still strong from 14,450 – 14,600. Towards the final 30 mins of trading for the Tokyo Stock Exchange today, bears tried to push below the key trendline, but were rebuffed by bulls for the candle to close higher with some to spare. This valiant effort has bought bulls some time, and it is possible that price may rally back up towards Kumo. However, the ability for price to break above the Kumo to revert to a bullish outlook is highly in doubt considering that intraday pressure for Futures is bearish with Major European Futures currently trading lower across the board.

Perhaps more crucially, 14,450 is holding nicely, which is highly critical for the Monthly Chart to remain bullish. Even if current Wedge is broken, but 14,450 manage to hold, we could still see some bullish comeback in August from a technical point of view. However, if 14,450 is broken, we could see even stronger bearish movements in August. Hence even though currently we’re seeing a bearish kumo twist, it is still not the end of the world for bulls. If US trading session manage to extend yesterday’s bull run, we could potentially see risk appetite growing back which will allow current deflated prices in Nikkei 225 to recover slightly.

More Links:
GBP/USD – Maintains Push Through 1.52
AUD/USD – Resistance at 0.93 Pushes it Back Below 0.92
EUR/USD – Settles Above Support at 1.31

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