- The Nikkei 225 initially did rally a bit during the early hours on Monday, but it looks like we are starting to dig into a significant amount of resistance.
- I believe that this resistance extends all the way to the 39,250 yen level, an area that has been important the last couple of times we've tried to break out to the upside.
- At this point though, we are struggling in general to continue.
Furthermore, you have to keep in mind that the Bank of Japan choosing not to hike rakes again on Friday does bring down the value of the Japanese yen in general, and that can give you a little bit of an opportunity to see whether or not exports in Japan would pick up as a result of a cheaper yen. Or does the yen continue to strengthen, which of course causes havoc with the Nikkei 225 as it is an export-laden index?
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Either way, the technical analysis has shifted to positive but is sitting just below a major resistance barrier. The key here is going to be whether or not we can break above the 39,250 yen level, because if we do, especially on a daily close, I suspect that there will probably be a fair amount of FOMO trading.
On a Pullback
On the other hand, if we were to pull back from here, the 50 day EMA comes into the picture, perhaps offering a little bit of support, and therefore I think maybe we will get value hunters in that region. You want to pay close attention to the Japanese yen if it starts to really strengthen against other currencies that will be bad for this index. That being said, it's not a one-to-one correlation, and it doesn't mean that just because the yen strengthens or weakens the Nikkei 225 has to move, it's just that historically speaking, it's a major component.
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