On Tuesday, the Nikkei225 futures (CME: NIY) took a breather, stepping back from its recent record highs. This pause echoed the temporary halt in the Wall Street rally, with notable chip-related stocks veering off course. Adding to the market’s contemplation was the unexpected strength in Japanese inflation. Year-over-year figures dipped from 2.6% to 2.2%, while core inflation moderated from 2.3% to 2%, surpassing the anticipated 1.8% consensus.
Looking ahead, the global sentiment hangs in the balance, awaiting the unveiling of US GDP and PCE statistics later in the week. These forthcoming sessions promise intrigue as they potentially shape the trajectory of the longer-term trend.
Technical
The daily chart shows a steep uptrend following the breakout from the prior descending channel. The uptrend has sustained, breaching the 25-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). However, it may have become overextended, as the RSI indicates overbought conditions, opening the door to a pullback.
Resistance at 39,635 triggered the pullback in recent sessions. Support at 38,210 could become a focal point if the selling pressure persists before the 23.6% Fibonacci retracement provides psychological support near the 25-SMA at 37,450. If the retracement is sustained in the longer term, the market could consider the 38.2% Fibonacci retracement level as a focal point near 36,095.
However, the futures have sustainably continued to form record highs in recent sessions. The bullish momentum could continue if the current pullback does not force the futures below 38,210. Resistance at 39,635 could once again be tested, and if the futures clear this hurdle, it could continue forming fresh record highs.
Summary
The Nikkei 225 futures have mirrored the US in halting its recent gains, following stronger-than-expected Japanese inflation data. Pivotal data from the US could drive sentiment in the upcoming sessions, with investors likely keeping an eye on support at 38,210 and resistance at 39,635 to gauge the future directional trend.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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