Short Term Outlook of Nikkei Index Trading Within The Rising Wedge

Short Term Outlook of Nikkei Index: Trading Within The Rising Wedge

The Nikkei Index opened lower and fell around 2% on Friday, following the drop of the U.S. market last night.

On the economic, Japan's industrial production fell 3.7% on month in March (-5.0% estimated), and retail sales declined 4.5% (as expected), according to the government. Housing starts dropped 7.6% on year in March (-15.9% expected) and construction orders declined 14.3% (+0.7% in February). Meanwhile, Consumer Confidence Index slid to 21.6 in April (27.6 expected) from 30.9 in March. From those economic data, we could see that Japan's economy is suffering from the effect of COVID-19.

On a daily chart, the Nikkei index retreated from 20350 and filled the gap created on April 30 after touching the 50% retracement between January top and March low.

Currently, the index is trading within the "Rising Wedge". This pattern could be a reversal pattern or continuation pattern. A break below the lower support line could indicate a reversal signal. Oppositely, a break above the upper resistance line would signal the resumption of recent trend. As the prices have not validated the pattern, it is better to watch it closely and stay neutral.

On the upside, a break above the recent high at 20350, where the unfilled gap occurred on March 9 also, would bring a further advance to the resistance level at 21700 (the reaction high on March 3).

On the downside, breaking below the support line would call for a return to the previous low at 18850. Crossing below 18850 would call for a drop to the support level at 17650 (the reaction low on April 3).

Source: GAIN Capital, TradingView

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.