Tuesday saw the Nikkei 225 futures (CME: NIY) maintaining a steady pace as a significant rate cut from China failed to ignite excitement among traders. China’s unexpected reduction of its five-year loan prime rate, from 4.2% to 3.95%, deviated from market expectations of a smaller adjustment to 3.95%.
Initially, this news lent some buoyancy to Japanese stocks, yet the enthusiasm proved short-lived. Nevertheless, the futures continue to hover around three-decade highs, propelled by the enthusiasm surrounding AI-driven advancements in the chip sector. With Nvidia, a key industry player, poised to unveil its quarterly results on Wednesday, the market has adopted a cautious stance. Should Nvidia’s results prove favourable, it may fuel further bullish momentum in the futures market. Conversely, any unfavourable surprises could prompt a retracement from recent gains.
Technical
On the 4H chart, a strong uptrend has formed, but recent sideways movement has seen a breach of the dynamic support. The 25-SMA (green line) provides support near 38,245 and could underpin another bullish leg. However, divergence on the RSI signals a potential bearish pullback and could be initiated if the 25-SMA support breaks down.
In this case, lower support at 37,880 could be a pivot point for the retracement. However, any movement below this threshold could trigger a prolonged pullback to the downside, bringing the 50-SMA (blue line) into the equation above 37,570 and the Fibonacci midpoint at 37,335. The 61.8% Fibonacci golden ratio is backed by the 100-SMA at 36,975 and could create a challenging barrier for the sellers to cross.
On the other hand, if the price remains above the 25-SMA, it could test resistance at 38,570. Clearance above this resistance could signal a continuation of the bullish trend. Resistance at 38,860 then presents the only hurdle to clear for the futures to continue forming new highs.
Summary
The Nikkei 225 futures temporarily halted their advance as they await crucial earnings from Nvidia on Wednesday. Support at 38,245 and resistance at 38,570 are worth keeping an eye on in the upcoming sessions and could determine whether the impressive ascent of the futures could continue.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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