The Nikkei 225 Futures (CME: NIY) showcase a promising second consecutive week in an upward trajectory, marking a robust 2.71% surge in recent days. This bullish momentum finds its roots in the Bank of Japan’s (BoJ) staunch adherence to negative interest rates and its steadfastly dovish stance on monetary policy. The BoJ’s resolution to maintain an ultra-loose monetary policy, refraining from an immediate shift away from negative interest rates, has been pivotal in propelling the index futures to higher ground.
BoJ’s Governor Kazuo Ueda’s optimistic outlook on wage and price movements, despite underlying uncertainties, has provided a boost to Japanese equities. This resurgence aligns harmoniously with the prevalent risk-on sentiment dominating global markets. Notably, the Federal Reserve’s openness to potential rate cuts in 2024 has contributed further to this optimistic outlook, potentially fostering an environment conducive to risk assets, including the index futures.
The BoJ’s commitment to sustain its accommodative monetary policy amid a backdrop of global central banks’ tightened policies has reverberated positively through Japanese equities, offering a promising outlook for the Nikkei 225 futures. This aligns with fundamental economic theory, where central banks’ policies often significantly impact investor sentiment and market movements.
Technical
The Nikkei 225 Futures have embarked on a robust uptrend, marked by a distinctive price surge and a notable position above the 100-day moving average. This surge found its foothold at the 30380 level, emerging as a significant support after the index futures rallied from oversold RSI conditions, indicating a strong buying interest in the market.
Encountering resistance at the 33865 level, the index futures faced overbought RSI conditions, triggering a subsequent reversal. However, the downturn halted at the 50% Fibonacci Retracement level, fostering a reversal from this critical point. As a result, the potential development of a downtrend was thwarted, signalling resilience in the market sentiment.
Presently, the 33865 level stands within striking distance, suggesting further upside momentum that could lead to a retest of this significant resistance. However, a pivotal factor lies in the balance between supply and demand near this level. Should demand wane and supply prevail, a potential reversal might ensue, keeping the 50% level as a probable support.
Summary
The Nikkei 225 Futures exhibit resilience and promise amid the Bank of Japan’s accommodative stance and prevailing global market sentiments. The index’s upward trajectory, supported by technical indicators, signals potential challenges at resistance levels, underscoring the delicate balance between demand and supply. Central banks’ policies continue to be pivotal in shaping market sentiment and future market movements.
Sources: Bank of Japan, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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