Nikkei futures raced higher during the Asian morning

Nikkei 225 futures

• The dollar is trading lower against all of its G10 counterparts during the European morning Wednesday, ranging from -0.20% vs JPY to -0.85% vs NOK.

• Sterling gained after the minutes of the latest BoE meeting showed that policymakers voted unanimously to keep interest rates at 0.5%. All MPC members agreed that the next move in rates is more likely to be an increase and once again a minority of policy makers said the decision to keep interest rates at a record-low in April was “finely balanced”. The minutes may be the last glance into the BoE’s thinking before the general election in May. Nevertheless, the short rally in GBP could see renewed selling interest as pre-election polls remain tight and uncertainty stays elevated.

• The Bank of Japan could cut its inflation outlook for the current fiscal year at its meeting next week, according to a Reuters report. This could increase pressure on BoJ to ease monetary policy further. Moreover, the Bank’s bi-annual economic outlook review is due to be issued at the meeting. Policymakers may also want to take further action if the new long-term projections show a deterioration in the inflation outlook. The possible announcement of a delay in reaching the inflation target and the prolongment of the Bank’s QE is likely to keep JPY on a weakening trend and at the same time drive Nikkei to new cyclical highs.

• Nikkei futures raced higher during the Asian morning Wednesday, breaking above the resistance (now turned into support) area of 20100 (S1) and recovering the 20,000 level for the first time in 15 years. The price structure suggests an uptrend, above both the 50- and the 200-period moving averages. Consequently, I would expect the price to continue higher and perhaps challenge the psychological zone of 20500 (R1) in the not-too-distant future. That zone also happens to be the 161.8% extension level of the 9th -17th of April decline. Nevertheless, looking that the RSI hit resistance near its 70 line and turned down, I would be careful that a pullback below 20100 (S1) could be in the works before the bulls pull the trigger again. I see signs of a possible pullback on the 1-hour chart as well. There is negative divergence between both our hourly momentum indicators and the price action. What is more, the 14-hour RSI dipped below its 70 line, while the MACD has topped and fallen below its signal line.

• Support: 20100 (S1), 19765 (S2), 19470 (S3)

• Resistance: 20500 (R1) (161.8% extension level of the 9th -17th of April decline)