Nikkei 225 Set for a Brief Correction After FOMC Minutes

Summary:
• The FOMC minutes show hesitancy on the part of the Fed to raise rates more aggressively as a data-driven approach is now preferred.

The Nikkei 225 index fell 0.27% today, after the major US indices scaled back gains on Wednesday following the release of the minutes of the July FOMC minutes. The major US stock indices started the session on the front foot, but surrendered all their gains after the
FOMC minutes hit the market.

The FOMC has decided to adopt a more data-driven approach to any future rate hikes, but in the short term has re-committed itself to controlling inflation in the US with one or two more aggressive rate tightening moves. The latest inflation data has since the last meeting, showed some evidence of cooling after the latest CPI and PPI figures were lower than expected.

However, the Nikkei 225 index looks set for a brief correction having crossed the 29,000 psychological price mark for the first time in seven months on Tuesday. This came on the back of strong investor sentiment from the gains seen on the US stock indices. The Nikkei 225 index
shares a direct correlation with the US stock market and an inverse relationship with the Japanese Yen.

Nikkei 225 Index Forecast

The break of the 28366 resistance (24 March, 9 June and 8 August highs) completed the breakout from the triangle’s upper edge. This opened the door for a potential measured move that targets the 14 September 2021 high at 30800.

The break of the resistance barrier at 28903 (8 December 2021 low) is in keeping with the expectations of the ascending triangle breakout. Further resistance barriers at 29416 (20 October 2021 high and 5 January 2022 high) and the 4/16 November 2021 tops at 29953 need to give way for completion of this move.

On the flip side, the bears may try to catch a small retracement move if the breakout move falters above 28903. This retracement may target the broken upper triangle boundary at 28366. A decline below this border points to a truncation of the breakout.

This would then make 27415 the next downside target, being the lows of 1 April and 27 July. Below this level, 26927 forms an additional downside target, followed by 26243, where the previous lows of 12 April, 19 May and 7 July 2022 are located.  

Nikkei 225: Daily Chart