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Nikkei 225 Rises Sharply On Possibility of 50bp Rate Cut

The Nikkei 225 average rose sharply in Friday’s Asian trading session as FOMC member John Williams boosted hopes of a more aggressive rate cut than the market is expecting. The Japanese index rose more than 400 points after hitting a session low of 20992 after comments by the New York Fed Bank President Williams to the effect that rate cutting at the first sign of trouble was the best direction for the Fed to take. This has heightened expectations that the Fed may cut rates by 50 bp and not 25bp as widely expected.

The US markets also closed higher on the day and this sentiment must have helped to bolster trading on the Nikkei.

Technical Plays on the Nikkei 225

Technically speaking, the Nikkei 225 index is contending with resistance around the 21500 level which is where the descending trendline that connects the highs from April 26 to date interacts with the current day’s candle.  This is also the site of the 61.8% retracement from the swing high of April 26 to the swing low of June 3. Only when this price level is breached by a 3% closing penetration to the upside will we see a major uptick in the index. This price move will then target the 21800 and 22,350 price levels.

Conversely, we have the ascending support trendline that extends from the June 3 low to the current day, which interacts with the daily candle at the 21000 price level. This is the 23.6% Fibonacci price level from the swing highs and lows identified in the paragraph above. Price violation of this trendline to the downside will open the gateway for the Nikkei 225 index to target the 20234 price level.

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