The Nikkei225 futures (CME: NIY) have maintained their upward trajectory this Monday, drawing inspiration from the vigour of the US markets and capitalizing on the impact of a softer domestic currency. Japan’s release of the Jibun Bank Services PMI on Monday added to the positive momentum, recording a reading of 53.1 – the highest since September 2023 and an improvement from the previous 51.5. This expansion was driven by ongoing international demand for Japanese services, coupled with the depreciation of the Yen. The Composite PMI mirrored this growth, advancing from 50.0 to 51.5.
Notably, foreign interest in Japanese services experienced an uptick for the first time in five months, propelled by enhancements in tourism, particularly in air travel. Overall, Japanese businesses exhibit heightened confidence in the upcoming year, with optimism reaching its highest since May of the previous year. So, can the Nikkei futures continue riding this optimistic wave?
Technical
On the 4H chart, a rising wedge pattern is in play, with the price action recently reversing from the 61.8% Fibonacci golden ratio at 36,485, where it converges with the dynamic resistance of the wedge. Volumes have declined, hinting at potential exhaustion in the bullish rally, leaving the door open for a breakdown in the upcoming sessions.
The Fibonacci midpoint at 36,330 acts as a last line of defence to the wedge’s breakdown. Any movement below this level could trigger a bearish run toward 36,175 and 36,009, where the 100-SMA (orange line) provides additional support. A pivot could occur at this level to retest the breakdown level, but if this pivot fails to occur, an additional leg down toward 35,890 could be likely.
However, if the support at 36,330 keeps the wedge formation in play, the futures could retest resistance at 36,485 and attempt to steepen the slope of the uptrend. A breakout above this resistance could result in a bullish move toward 36,705 before a retest could happen at 36,975, a psychological resistance level.
Summary
The Nikkei 225 futures have kept their uptrend intact, following US equities higher while benefitting from a weakening Yen. However, a rising wedge has emerged, hinting at a potential breakdown and trend reversal if support at 36,330 fails to withstand the selling pressure.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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