It’s been another eventful week in financial markets. We saw the ECB announcing its first rate hike in Over a decade, along with hawkish minutes from the RBA and a firmly dovish meeting from the BOJ. USD action was rather lacklustre this week which turned trader attention elsewhere. In the currency space, it was largely a case of risk currencies dominating safe-havens this week. However, looking outside of the Forex market, it seems the move capturing the most attention amongst traders was the more than 4% rally in the Nikkei. So, let’s take a look at what caused the move and, as ever, if you caught it? Well done! If not? There’s always next week.
What Caused the Move?
Risk Sentiment Rebounding Amidst Weaker USD
The first driver behind the rally we’ve seen in the Nikkei this week is the broad pickup in risk sentiment. The US Dollar was correcting sharply lower at the start of the week, driven by recent comments from some Fed members who pushed back against the need for a larger 1% hike this month. On the back of June’s CPI report, traders had been mulling the prospect of more aggressive action than the Fed, e.g a larger rate-hike. However, Fed’s Waller & Bullard were seen pushing back against the idea of a larger hike, which led to some long-covering in USD at the start of the week. With USD moving lower, risk assets across the board were seen moving higher this week.
Dovish BOJ Meeting
Alongside the rebound in risk appetite, fuelled by a weaker USD, we also saw the Nikkei benefitting this week from a dovish BOJ meeting. While the rest of the G10 is tightening monetary policy on the back of the pandemic, the BOJ is the last remaining central bank still in easing mode. This week, the BOJ reaffirmed its commitment to easing, downplaying the likelihood of any near-term rate hikes, citing the remaining uncertainty and weakness within the economy, despite inflation running further above target.
Technical Views
Nikkei
The rally off the 25595.3 lows has seen the market breaking above the bear channel top and 27422.9 level. With both MACD and RSI turned bullish here, while above this level, the focus is on a further push higher towards the 28356.6 level. To the downside, should price slip back under 27422.9, 26246.0 will be the next main support to note.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.