In 2023, the Nikkei 225 futures (CME: NIY) showcased a remarkable resurgence, marking its most robust annual performance in a decade with a 29% surge.
Embarking on 2024, the index futures have sustained this momentum, notching four consecutive weeks of gains, poised for a fifth. A significant milestone was achieved during Thursday’s early trading hours as the index breached a 34-year pinnacle at 35,000, symbolizing a remarkable ascent.
Notably, despite a concerning trend of Japanese workers’ real wages declining for the 20th consecutive month in November, this has served to alleviate inflationary pressures. The labour market’s pivotal role in driving inflation underscores the nuanced relationship between economic indicators and market dynamics. The resulting impact, a tempered expectation of an imminent rate hike by the Bank of Japan, has paved the way for the equity surge amid an environment of ultra-loose monetary policy. As markets eagerly await US inflation data, today’s focus intensifies on whether the anticipated rate cuts in the US remain justified.
Technical
The Nikkei 225 futures have carved a robust uptrend, firmly positioned above the 100-day moving average, exemplifying the market’s resilience.
The breach beyond the former resistance level at 33865 not only underscores the trend’s strength but also establishes a potential newfound support level should a downturn materialize. In the midst of this swift rally, the index futures have successfully surpassed the 50% Fibonacci Extension level, hinting at substantial upward potential.
If the upside momentum persists, market watchers could eye the 61.80% Golden Ratio as the next pivotal point of interest to the upside. However, caution prevails with overbought RSI conditions, signalling a potential reversal. This sentiment gains traction as the price retraced from the 50% extension level. In the event of a sustained downturn, the 38.20% level emerges as a plausible point of interest to the downside.
Summary
The Nikkei 225 Futures, surging 29% in 2023 and breaching a 34-year high at 35,000 in 2024, reflect sustained market confidence in the index futures. With real wage declines, tempering inflationary pressures, and the index breaking through technical levels, further upside momentum could see the 61.80% Fibonacci Extension Golden Ratio probable.
Sources: Ministry of Health, Labour and Welfare Japan, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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