Nikkei rebounded strongly during Asian session, closing up by more than 800 points or 2.13%. This marked the index’s first day of gains in nine sessions, following a three-month low last week. The stabilization in US tech stocks on Friday helped calm investor sentiment, while Nikkei also found stability as Yen consolidated its recent gains ahead of BoJ meeting later this week.
However, today’s bounce appears to be driven largely by short covering in anticipation of key events. There is a risk that BoJ may raise interest rates this week, which could strengthen Yen and subsequently pressure Nikkei. Meanwhile, Fed might start signaling a rate cut in September, but market reactions remain uncertain as this is already largely priced in.
Technically, Nikkei is probably just trying to fill the gap left on last Thursday. Near term risk will stay on the downside as long as 55 D EMA (now at 39398.18) holds. Further fall is expected to 38.2% retracement of 25661.89 to 42426.77 at 36022.58, which is close to 55 W EMA (now at 36206.32) before having enough support for a sustainable rebound to set the range for medium term consolidations.
