The Nikkei 225 futures (CME: NIY) recently soared to fresh heights not seen in 34 years, riding the wave of a robust equity market rally. This surge occurred despite Japan’s GDP readings falling below expectations, with a quarter-on-quarter GDP of -0.4% on an annualized basis, missing the consensus of 1.4%.
The unexpected slip into recession following the prior -3.3% decline dampened sentiment surrounding the Yen, with market players now anticipating a persistently dovish monetary policy. However, the depreciation of the Yen was just one element influencing this downturn. Japanese shares saw a boost as chip-related stocks mirrored the upward trajectory of Wall Street overnight. With this dynamic backdrop, the question looms: can the futures maintain their remarkable ascent into uncharted territory?
Technical
On the daily chart, a sustainable uptrend has formed from the breakout of the descending channel. While the RSI remains in overbought conditions, the 25-SMA (green line) still remains well above the 50-SMA (blue line) and 100-SMA (orange line), suggesting continuous bullish momentum. Resistance at 38,390 is the next hurdle of resistance to the ascent and could come into play in the upcoming session.
If the resistance holds, a pullback on the back of an overbought RSI could occur, potentially bringing the prior 161.8% Fibonacci extension at 36,130 into play. The 25-SMA offers additional support here, which could create a psychological support level. However, a breakdown could set up a potential trend reversal toward 35,680 and 34,380, the Fibonacci midpoint.
Conversely, if the resistance of 38,390 gets cleared, the futures will enter uncharted territory. The 261.8% Fibonacci extension from the prior downtrend could then become a likely destination in the longer term at 39,760 if the bulls maintain the upper hand.
Summary
Despite slipping into a recession, the Nikkei 225 futures tracked the US markets higher on Thursday, driven by gains in chip-related shares. If the uptrend is to continue, clearance is required at 38,390 before the futures will enter uncharted territory.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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