Nikkei 225 Edges Higher On Stronger Yen

The benchmark Nikkei average posted steady gains throughout the day after a slight gap open, to close at 16,693 for a gain of 0.38%. The index remains below signifcant resistance and a potential breakout can shift sentiment towards the index this week.

USD/JPY has fallen into a consolidation near the 104.00 handle since the weekly open. A decline from this week’s open took the pair to a low of 103.68 at the Asian open, and a recovery was seen from that point. Within the recovery, the pair has posted a high of 104.12 the current high of the day, prior to turning lower in the European session towards recent lows.

Asian equity markets were broadly higher, with the Topix index advancing 0.30%, Shanghai composite index gaining 1.40%, Hang Seng index up 1.55%, and KOSPI index adding 0.63%.

Among the market mover’s, Tokuyama Corp posted the best performance of the session with shares advancing 6.21%. Japan Tobacco shares dropped 2.79% to lead the decliner’s list.

Precious metals were seen moving higher, despite broad-based gains in Asian equities. A steady rally in Gold prices from this weeks open shows XAU/USD trading at $1261 for a gain of 0.47%. Silver prices have outpaced gains with XAG/USD trading at $17.61, up 0.98% on the day.

While the Nikkei faces strong resistance from a declining trendline that connects late April highs with early September, as well as the psychological 17,000 handle, the technical outlook favors a bullish break. The pair has now traded above the 200-period daily moving average for eight sessions, and while above the indicator the index carries some bullish sentiment. The correlated USD/JPY has posted strong gains of the past two weeks. There has been some consolidation at the 104.00 handle, but with momentum in the earlier rally and a clear indication of a turn lower lacking, further upside carries a higher probability. In the event of a trendline break, there is further horizontal resistance at 17,238 referencing May highs. A break above the level would provide some confirmation that the trendline break is sustained. Support to the downside remains at the 200 DMA, currently seen residing at 16,650.

Nikkei Daily Chart

Nikkei Daily Oct 17

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.