The Nikkei 225 Futures (CME: NIY) have emerged as a standout performer this year, showcasing resilience amidst global market turbulence. Despite encountering only three weeks of losses, including back-to-back declines last week, the futures have surged impressively, boasting an 18% year-to-date gain.
This week’s developments are poised to be pivotal, with the Bank of Japan (BoJ) orchestrating a significant shift away from ultraloose monetary policy, alongside the Federal Reserve’s imminent Interest Rate Decision, set to sway risk sentiment.
In a historic move, the BoJ elevated interest rates from a prolonged negative stance to a range between 0% and 0.1%, marking the first rate hike in Japan since 2007. While conventional wisdom would anticipate equity markets to recoil in response to such tightening measures, the Nikkei 225 Futures are defying expectations, edging marginally higher by 27 basis points in the session. This unexpected resilience can be attributed to the BoJ’s commitment to maintaining accommodative monetary policy in the foreseeable future, countering the dampening effect of higher interest rates on equity investments and redirecting investor focus towards the futures market.
Technical
The Nikkei 225 Futures have experienced a notable shift in sentiment, favouring the upside trajectory. Initially, the futures traded in a downtrend, residing below the 100-day moving average and confined within a descending channel. However, a breakthrough beyond the channel boundaries and above the moving average heralded the resurgence of bullish sentiment.
A selloff, triggered from the 40570 level amid overbought RSI conditions, found support at 38085, marked by oversold RSI conditions, halting further declines. This reversal sparked a bullish upswing, driving the index futures higher, currently resting at the 61.80% Fibonacci Retracement Golden Ratio level.
In the near term, a potential bearish reversal could materialize if the current level acts as intermediate resistance, potentially targeting the 50% Fibonacci level. Conversely, sustained upside momentum could propel the futures towards the 40570 resistance level, representing a focal point of interest to the upside.
Summary
Despite global market turbulence, the Nikkei 225 Futures have shown resilience, surging 18% year-to-date. The Bank of Japan’s historic rate hike and technical breakout signal bullish sentiment. A potential bearish reversal may occur at the 61.80% Fibonacci level, while upside momentum potentially targets the 40570 resistance level if the level fails to hold.
Sources: Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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