Nikkei 225 Technical Forecast:
- The Nikkei 225 is just 5.9% higher in the year-to-date as the Japanese economy struggles with lackluster growth and trade uncertainty
- A potential US-Japan trade deal could see the NKY retake prior resistance
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Nikkei 225 Technical Forecast After the G7 Summit
The Nikkei 225 has struggled in the year-to-date as lackluster growth and trade tensions have helped to keep a lid on more substantial progress. Following the G-7 Summit in France, however, the NKY could enjoy a boost if a trade deal between Japan and the United States – which both Prime Minister Abe and President Trump alluded to – comes to fruition. According to the Japan Times, the envisaged deal would see Japanese tariffs on US beef decrease from 38.5% to 9% incrementally and US levies on Japanese industrial products could be scrapped. Critically, Japanese autos are not thought to be part of the exempt products. As it stands, the deal is set to be inked sometime in September.
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While the prospective deal could assist US farmers who find themselves pressured amid the US-China trade war, the cementation of tangible progress would likely be the more immediate impact on the likes of the Nikkei 225 and the Dow Jones. With uncertainty abound, tying up even a single loose end would be a welcome development for equity markets. To that end, the Nikkei 225 could look to retake nearby resistance that once offered buoyancy.
Nikkei 225 Price Chart: 4 – Hour Time Frame (January – August) (Chart 1)
Initial resistance will be offered by recent highs around 20,775 before a secondary barrier, the trendline from late 2018, will come into play. Residing around 20,970, the ascending trendline is narrowly beneath the 200-day simple moving average that rests slightly above 21,000. Together, the zones will join to offer relatively robust resistance, but a trade deal between two of the world’s largest economies may deliver the spark necessary to surpass the area.
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Given the recent tendency for negotiations to breakdown or deals to fall through, nearby support should also be highlighted. August lows around 19,900 could play an important role in the coming days as global equities grapple with the US-China trade war escalation and risk aversion lingers. February and June swing lows – that coincide with the 23.6% Fibonacci level at 20,240 – could also look to keep the Nikkei 225 afloat in the interim. Should both zones fail, tertiary support is opaquer but could appear near January lows near 19,300. As US and Japanese officials hash out the exact details of the trade agreement, follow @PeterHanksFX on Twitter for updates and analysis.
--Written by Peter Hanks, Junior Analyst for DailyFX.com
Contact and follow Peter on Twitter @PeterHanksFX
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