EURJPY
The Nikkei 225 index rose by 80 basis points today even after several disappointing numbers from Japan. The rise was probably a reaction to the rally in Wall Street yesterday when the Dow Jones index rose by almost 2%.
The Nikkei 225 index rose even after data from Nomura showed that the services and manufacturing sectors in the country contracted this month. According to the report, the important manufacturing PMI dropped from the previous 44.8 to 43.7 as the impacts of coronavirus spread. This was the weakest data since 2012.
Meanwhile, the services sector also weakened, with the services PMI dropping from 33.8 to a record low of 22.8. This was the lowest the service has contracted within a month.
The weakness in manufacturing and services sector came at a time when Japan is implementing a nationwide state of emergency. The government has also encouraged people to only go outside when necessary. It has also asked companies to allow people to work from home.
Still, things seem to be getting worse. A few hours ago, Toyota, one of the biggest companies in the country, said that it would halve production in the country. In doing this, the company will reduce the amount of cars produced in all its 18 plants, which will lead to significant job losses.
The new measures come a few weeks after the company shut down seven production lines at five of its plants. Other companies like Honda and Mitsubishi will likely do the same.
Toyota manufactured 3.4 million cars last year and exported 2.1 million of those.
Japan and South Korea are important trading partners, although they have some differences. Therefore, it was bad news when South Korea reported that its economy shrank by 1.4% in the first quarter. This was the biggest decline o the economy since 2008. This come a day after the government said that it would implement the third stimulus worth $32 billion to help companies deal with the pandemic.
Most companies in the Nikkei 225 index were in the green today. The best-performing was CyberAgent, whose stock rose by more than 7%. It was followed by Yokogawa Electric, JGC, J.Front Retailing, and Mitsui Electric, all which rose by more than 5%. Toyota stock rose by 4.3% while Nissan rose by 4%.
The worst-performing stock in the Nikkei 225 index were Eisai, Advantest, Recruit Holdings, and Keisei Electric Railway, which declined by more than 2%.
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The Nikkei 225 index rose to an intraday high of ¥19,370 from its opening price of ¥19,296. On the four-hour chart, the price is trading along the 50-day EMA and along the 50% Fibonacci retracement level. This retracement was drawn by joining the YTD high and low, which happened in March. Also, the index formed a relatively small bullish hammer pattern yesterday.
Therefore, I expect the index to continue rising if it manages to move above the 50-day EMA. In this scenario, bulls will attempt to retest the weekly high of ¥19,936.
The alternate scenario is where the index finds significant resistance at the 50-day EMA. This means that it could move lower and test the 23.6% retracement at ¥18,134.