nikkei 225 still holding above 16200 medium term pivotal support ahead of boj 1823572016

Daily Outlook, Fri 29 July 2016 (Click to enlarge charts) What happened earlier/yesterday The Japan 225 Index (proxy for the Nikkei 225 futures) has spiked […]

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By :  ,  Financial Analyst

Daily Outlook, Fri 29 July 2016

Japan Index (4 hour)_29 Jul 2016

Japan Index (1 hour)_29 Jul 2016(Click to enlarge charts)

What happened earlier/yesterday

The Japan 225 Index (proxy for the Nikkei 225 futures) has spiked down by 1.8% in today’s early Asian session (29 July) to print a low of 16318 before it rebounded back towards the 16500 handle.

This high volatility of price movement occurred within a span of an hour at 2230 GMT ahead of BOJ’s latest monetary policy announcement (till now, timing is still undecided based on BOJ’s official website, click on this link for more details)

The spike down seen on the Nikkei 225 is also being mirrored exactly in USD/JPY given their close direct correlation. Interestingly, the flushed down in USD/JPY has tested but managed to hold right at our predefined key medium-term support zone of 103.55/30 (click this link to recap our macro strategy published yesterday).

Key elements

  • Based on the current price action on the Index, the gains of the rally from 26July 2016 low of 16253 to 27 July 2016 high of 16844 has almost been wiped out. This recent price movement has implied that expectations have been reduced on BOJ’s impending monetary policy announcement that is likely to disappoint.  Interestingly, price action of the Index has even continued to slide after weak CPI and Household Spending for July continued to disappoint (released at 2330 GMT) where BOJ is likely to be pressured to enact more easing policies. CPI ex fresh food (BOJ’s benchmark for inflation) has decline by -0.5%y/y versus a consensus of -0.4% y/y which marked a fourth consecutive month of decline. Household spending declined 2.2% y/y versus a consensus of -0.4% y/y.  However from a contrary opinion perspective, it increases the probability in the element of surprise on the positive side which may see a rebound on the Nikkei 225 and USD/JPY.
  • The Index is still holding above the 16200 medium-term pivotal support set for this week (click on this link to recap the details).
  • The intermediate resistance to watch now will be at 16780 which is defined by the minor swing high areas of 25 July/27 July 2016.

Key levels (1 to 3 days)

Pivot (key support): 16200 (medium-term pivot)

Resistances: 16780 & 17100/240

Next support: 15830


Maintain bullish bias despite this morning spiked down. As long as the 16200 pivotal support holds, the Index is likely to see a recovery towards 16780 and a break above it (hourly close) may add impetus for a further push up to target the 17100/240 resistance zone in the first step.

However, a break below the 16200 pivotal support is likely to invalidate the preferred bullish bias for a further slide towards the next support at 15830


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