To continue my recap of the last week, here’s the added information of the Japanese markets.
The title comes from one stupid index construction – due to price-weighting – used as a bench mark (the Nikkei 225) going higher than another (the Dow Jones Industrial Average) for the first time in a very long time! Depending on how you count it this happened during the late Asian hours on Thursday (when the Nikkei futures traded higher than the DJIA closing price) or on the respective time on Friday when the US employment data had a much bigger effect on Nikkei futures than on the DJIA, thanks to the yen push factor and better expectations of increased exports from Japan to the US.
On top of this, Abe Shinzo will look to go into the second and last week of election campaigning this week, against a still completely disoriented opposition. He will go into this on Monday with GDP revision numbers coming out, with Bloomberg forecasts of a Q3 revision to -0.6% from a -1.6% headline numbers. Bank lending and current account numbers will all be out at the same time tomorrow morning (08:50 Japan Standard Time, or 23:50 today, GMT) 40 minutes before the Japanese markets open. I’ll go over a bit more of what the markets might see in terms of data before the election, after I give you a technical outlook on the Japanese markets in general.
Here, we have a strong momentum play from the last steep trend line, looking to replicate the latter half of October’s trading in terms of points on that parallel line, and a “match” would imply that the rest of the week will hold positive momentum. As I have argued previously, I do think the market will be in wait a bit more for the election, waiting to take positions until after the dust has settled on and markets have opened on Monday December 15th, but the 48/120 hour EMAs plus breaking the upwards trend channel and holding it for more than 8 hours (which is a first!) will undoubtedly provide more momentum. “Following the line” would set an end-week price of roughly 19 000, so that would be interesting to see if it plays out.
If 12 hours pass of neutral trading, then the 48 hour EMA and the trend line will really start lending support to price, so this could be interesting to watch. Then, will we get any help from elsewhere?
The Nikkei does have some catching up to do against the dollar after the employment numbers came out! There’s nearly a 1.5% reaction to the effect of the employment numbers, plus bouncing off the trend channel top, and getting support by the 48 hour EMA. Momentum indicators on the bottom are also indicating strong momentum, but the distance to the established price action is so far that there is the possibility of giving away the majority of those gains again. I also personally believe that the 121.85 level will prove very difficult to cross, given that the other Fibonacci levels from the 2002-2004 USD/JPY downwards move have proven very resilient. If this is broken though, it sets up tests at peaks near 124.14, and 125.60. Given the previous market action around these levels giving initial breaks that are retreated on, a break should probably only be called after 24 hours of continuous trading above the 121.85 line.
I find this to be difficult to support, as good as the US employment data might have been, I think the best that will happen is a quick break above that gets reversed, unless the majority of a Japanese trading day trades price higher after crossing.
Time for looking at what data Japan will look into next week then! This, as always, after the jump!