The Nikkei 225 futures (CME: NIY) again soared to new heights on Tuesday, marking another remarkable 34-year peak following the latest interest rate decision by the Bank of Japan (BoJ). Rather than triggering a downturn, the BoJ’s decision to maintain interest rates at -0.1% without any alterations has served as a catalyst for this renewed surge.
After a robust 30% climb last year, the futures have maintained their momentum, surging nearly 10% in the initial three weeks of the new year. This surge coincides with the BoJ’s adherence to its existing yield curve control (YCC) policy, allowing 10-year government bonds to fluctuate up to 1%, coupled with a lack of updates on future monetary policy guidance. As the Japanese Yen weakened again, it paved the way for the futures to extend their impressive ascent.
On the 1D chart, the ascending channel experienced a breakout on Monday, while the clearance of the 25-SMA (green line) above the 50-SMA (blue line) and 100-SMA (orange line) confirms the bullish presence. However, the RSI indicates overbought conditions, leaving the potential for a pullback in the upcoming sessions.
The price action is currently retesting the breakout level near 36,320, a level of crucial importance for the future direction of the trend. If support underpins a bounce back in the price, a retest at 36,975 becomes likely. If the futures can clear this level, it can continue forming new record highs as the week concludes.
However, a breakdown at 36,320 could result in the futures falling back within the channel trend, where support at 36,065 and 35,220 could be levels of interest as the channel pattern plays out. The 38.2% Fibonacci retracement from the current peak could then be a pivot point at 34,495 to either catalyse a bullish reversal or signal a breakdown at the channel toward 33,725, the Fibonacci midpoint.
The Nikkei 225 futures continue to form new record highs as the BoJ maintains its ultra-loose monetary policy. The retest of the breakout at 36,320 could be important to determine if the strong uptrend can be sustained or if a temporary pullback is on the cards.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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