Nikkei 225 Recovery Meets Trendline Resistance

The benchmark Nikkei average edged up for a fourth consecutive daily gain on Wednesday, rising in choppy trade. The index briefly scaled above the 17,000 handle where resistance in the form of a declining trendline triggered a turn lower near the end of the session for a close at 16,998 to post a gain of 0.21%.

The Nikkei is seen diverging from the Yen as USD/JPY consolidated sideways before finally dropping lower after the equity close. The currency pair fell below support at 103.92 after the European close on Tuesday and consolidated in a 20 point range. The pair is seen trading near lows of the day ahead of the North American open, trading at 103.32 for a loss of 0.52% on the day. A technical break has been seen in the pair, as two rising trendlines have been breached to the downside. A rising trendline from September 26 lows and a rising trendline from October 9 lows had been holding the pair higher as seen on a 4-hour chart. The break lower was seen during North American trading on Tuesday.

Gold prices extended higher for a third consecutive session despite global equities generally rising this week. The yellow metal is seen approaching resistance from prior highs set in March and last traded at $1269 for a gain of 0.61%. While Gold prices trade at two-week highs, Silver prices have been lagging not being able to break last week’s high.

Asian equity indices today were mixed with some declines and some marginal gains, hinting of a turn lower. The broader Topix index edged up 0.05%, Shanghai Composite added a marginal 0.03%, Hang Seng index declined 0.38%, and the KOSPI index posted a small gain of 0.02%.

Among the market movers, Mitsubishi Motors posted the best performance after reports stating that Nissan Motors has appointed it’s CEO Carlos Goshn as chairman of Mitsubishi Motors. Shares rose by 38.00 Yen or 7.85%. The top ten decliners list contained several electronic companies, including Hitachi, Fujitsu, and Sony. The worst performer was Tokuyama, posting a loss of 6.82%.

The Nikkei is seen facing notable resistance as a declining trendline connecting late April highs with early September highs as already served to trigger a consolidation lower earlier this month. The resistance carries some confluence with the psychological 17,000 level, creating a barrier for the index. Correlations with USD/JPY will be important. In the rally from late September lows, the currency pair has shown shallow retracements indicating bullish demand. The latest COT report has also shown a significant long covering in Japanese Yen after non-commercials had held elevated net long positions for an extended period of time. There remains bullish sentiment attached to USD/JPY, and the pair will be closely watched for reversal signs. Near-term support in the Nikkei is seen at 16,911 in the event of a pullback. A break of resistance shows the next notable level of resistance at 17,238 referencing late May highs.

Nikkei Daily Chart

Nikkei Daily Oct 18

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.