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.
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.
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
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.