Nikkei 225 Eyes Wall Street Bounce Ahead of NFP

Wall Street’s rebound has improved the near-term backdrop for risk, with Fed hike odds easing ahead of US nonfarm payrolls. Nikkei 225 futures are also showing signs of stabilisation around technical support, although KOSPI price action and resistance near 66k could determine whether the recovery gains traction.

 

 

 

Nikkei 225 Eyes 66k as Wall Street Risk Appetite Improves

Wall Street Rebounds as Fed Hike Bets Ease

Wall Street indices enjoyed a risk-on bounce on Thursday after Fed Governor Christopher Waller publicly backed the Fed holding interest rates at its September meeting. Fed funds futures have reduced the odds of a 25bp hike to around 50% from 60% just a few days ago, with the probability of a follow-up hike by March dropping to 35%.

Source: CME, TradingView

 

• S&P 500 futures rose 1% for their best day in over four weeks after finding support at the 50-day EMA and June and July highs. The 20-day EMA around 7700 is a potential support area for dips.
• Nasdaq 100 futures rallied 1.2% after forming a double top around 29k, with yesterday’s bullish range-expansion candle closing above the 20- and 50-day EMAs and forming the third candle of a morning star reversal pattern.
• Dow Jones futures also rose 1.2% after a marginal break below the 50-day EMA, but respected the breakaway gap from August 3 and closed well above the 20-day EMA.

 

 

Nonfarm Payrolls Put the Risk-On Bounce to the Test

Nonfarm payrolls could put these pre-emptive moves to the test, as a hot print could revive hawkish bets and weigh on Wall Street sentiment. Yet having looked at JOLTS jobs figures yesterday, they seem to back up the general theme of a slowly deteriorating jobs market, as opposed to one weak enough to dispel the threat of hikes amid elevated inflation.

So, if NFP is lukewarm, it could allow Wall Street to hold on to much of its gains from the past two days or even extend its rally.

The question for today is whether this sentiment can spill over to the Nikkei 225 or ASX 200.

 

 

KOSPI Holds Support as Nikkei 225 Eyes a Bounce

Looking at correlations with the Nikkei 225, the KOSPI still has the edge over the Nasdaq. So, it is interesting to note that the KOSPI cash index held above its March high support.

But for us to expect a meaningful rally on the Nikkei, we likely need to see the KOSPI bounce today. Hopefully, the Korean index will take its lead from the structurally more bullish Nasdaq, following its morning star reversal pattern around 29k.

Source: KRK, NASDAQ, TradingView

 

 

Nikkei 225 Futures (NK) Technical Analysis

A potential falling wedge is forming on the daily Nikkei futures chart, which is considered a bullish continuation pattern within an uptrend. The fact that a small doji formed around the 100-day EMA shows bears losing steam around a decent technical support level, while the daily RSI (2) reaching oversold two days ago adds to the case for a bounce.

The 4-hour Nikkei chart on the right shows the market has failed to hold below 64k this week despite several attempts to break lower. While the pivotal S/R zone just below 65k caps as resistance for now, I am viewing minor pullbacks within the recent congestion zone as potentially offering an improved reward-to-risk ratio for bulls anticipating a breakout.

Note that the daily and weekly pivot points reside just below 66k, making it a likely resistance zone over the near term. A break above it could bring 67k into focus.

However, as 66k strikes me as a pivotal level, I am equally open to the market turning lower after a suspected initial rally towards it. Incoming data will decide which route it takes.

Source: OSE, TradingView