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Dow Jones Falls, Nasdaq 100 Gains Ahead of the Fed. Nikkei 225 Eyeing the BoJ

Dow Jones Falls, Nasdaq 100 Gains Ahead of the Fed. Nikkei 225 Eyeing the BoJ

Daniel Dubrovsky, Strategist

Dow Jones, Nasdaq 100, Nikkei 225, FOMC, BoJ, Technical Analysis – Asia Pacific Indices Briefing

  • Dow Jones fell as Nasdaq 100 gained after choppy session as volatility cooled
  • Nikkei 225 eyes the Bank of Japan, but could remain vulnerable to external risks
  • Sentiment may remain constrained until the FOMC monetary policy announcement

Tuesday’s Wall Street Trading Session Recap

Stocks on Wall Street mostly closed lower during Tuesday’s North American trading session, reversing gains seen initially at the open. The Dow Jones, the tech-heavy Nasdaq 100 and the S&P 500 wrapped up -0.15%, +0.10% and -0.08% respectively. This was also in stark contrast to Monday, where the major benchmark indices saw some of the worst daily performances since May.

Hesitation from investors to ‘buy the dip’ could be due to looming economic event risk. This is primarily the Federal Reserve interest rate decision. As the central bank moves increasingly closer to tapering quantitative easing, the global economic backdrop has been arguably deteriorating. Rising Covid cases, relatively high inflation and slowing GDP growth estimates in the US and China are creating uncertainty.

Meanwhile, Chinese real estate giant Evergrande seems to be on the brink of default, with heavy debate occurring about whether or not there could be contagion and systemic risk. All of this creates the perfect scenario for some profit taking in equity markets given healthy returns since last year’s bottom in the aftermath of the Covid-induced top.

Dow Jones Technical Analysis

The Dow Jones extended losses in the aftermath of breaking under a bearish Rising Wedge chart pattern, as expected. Prices were unable to hold losses under the key 33623 support point, which was the July 19th low. This is as the 200-day Simple Moving Average sits just under 2% from where prices closed on Tuesday. Clearing the SMA risks opening the door to a broader reversal, but it may also reinstate the dominant upside focus.

Dow Jones Futures – Daily Chart

Dow Jones Falls, Nasdaq 100 Gains Ahead of the Fed. Nikkei 225 Eyeing the BoJ

Chart Created in TradingView

Wednesday’s Asia Pacific Trading Session

Wall Street futures are pointing lower heading into Wednesday’s Asia-Pacific trading session, opening the door for sentiment to continue deteriorating. A key event risk, particularly for the Nikkei 225, could be the Bank of Japan monetary policy announcement. Given the central bank’s fairly static approach to policy, even before Covid, not much noise may come from here.

It will be curious to see if Governor Haruhiko Kuroda has anything to say about the country’s prime minister, Yoshihide Suga, stepping down. This has been raising speculation for more fiscal stimulus. This remains uncertain however, and may yet to have an immediate impact on monetary policy. Until the Fed crosses the wires, risk appetite may remain fairly constrained.

Nikkei 225 Technical Analysis

Nikkei 225 futures look increasingly vulnerable to a near-term turn lower. Prices recently rejected the ceiling of what appears to be a brewing Bullish Rectangle chart pattern. That makes for a zone of resistance between 30345 and 30725. Prices are eyeing the 20-day SMA, which could pivot prices higher. Afterall, a bullish Golden Cross formed with the 50-day line earlier this month. The floor of the triangle seems to be a zone between 26860 and 27580.

Nikkei 225 Futures – Daily Chart

Dow Jones Falls, Nasdaq 100 Gains Ahead of the Fed. Nikkei 225 Eyeing the BoJ

Chart Created in TradingView

--- Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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