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Nikkei 225 Technical Analysis: 2017 Gains Look Like Toast

Nikkei 225 Technical Analysis: 2017 Gains Look Like Toast

David Cottle, Analyst

Talking Points:

  • The Nikkei 225 has taken a battering as the Japanese Yen has gained
  • It’s now only 200 points or so above where it started the year
  • And the near-term prognosis doesn’t look great for any remaining bulls

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The Nikkei 225 is in a very uncomfortable spot. A fall of a little over 1%, or 200 points, would see its gains for the year wiped out.

19155.7 is where the index started the year. 19376.9 is where we are at the time of writing (2331 GMT on August 21).

To make matters worse that fall – and then some – looks all-but inevitable. The index had been in a gentle downtrend since it made its 2017 high back in mid-June. But that trend accelerated a couple of weeks back. Now the Nikkei’s short-term, 20-day moving average has crossed below both its 50- and 100-day versions. Such a crossover is generally held to be a bearish sign. Another one could be coming up, too, with the 50-day getting awfully close to the 100-day as you can see on the chart below.

There’s some sound fundamental backing for all this gloom too. The Japanese Yen sunk late last year thanks to the so-called “Trump trade.” That was when investors shook off their surprise at Donald Trump’s Presidential win, opted to give him the benefit of many doubts and hope for business-friendly tax cuts.

Now, with that thesis in severe doubt, the Yen has risen again. Indeed, it has been on the rise all year. This is never a sight to gladden the hearts of investors in the Nikkei’s plentiful exporters.

On a shorter-term view, the Nikkei is in the middle of a downtrend channel drawn from its August 7 high. The bulls may make a fight of it in the days ahead, of course. But at present there is little sign of the resolve needed to break that channel to the upside. Barring shocks the Nikkei may well be in the red for the year before next week is over.

If it is, the climb up from August 2016’s lows – in the 18200 area – will be in nervous focus once more.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

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