The Nikkei225 futures (CME: NIY) started the week firmly on the front foot, with the bulls successfully continuing the momentum into the Asian session on Wednesday. Japan’s shares have enjoyed a sense of optimism, with well-renowned investors like Warren Buffet indicating a desire to increase his exposure to their stock market. However, as US inflation data looms, the bears will be ready to pounce on any information that could burst the bubble of the bulls. 

On Wednesday, Japan’s PPI numbers revealed a third consecutive month of contraction, as the yearly number came in at 7.2%, down from the 8.3% in the February release. These statistics came after the new Bank of Japan governor, Kazuo Ueda, pointed to a continuation of their ultra-loose monetary policy for now. The futures now look to the US CPI release later today to determine whether the bullish run could sustain. 

Technical 

On the 4H chart, the futures can be seen retracing from the mid-March lows, where it now approaches the 78.6% Fibonacci retracement level at 28,190. The uptrend has broken through the 50-day moving average on a strong RSI, signalling a continuation of the current momentum. If the US inflation data does not dent the market’s risk sentiment, the futures could continue this uptrend to threaten a breakthrough from 28,190 on a path toward higher resistance at 28,340. However, if the market perceives the data negatively, the uptrend could be threatened for a move back toward the Fibonacci golden ratio of 61.8% at 27,760. 

The 1D chart shows a sideways trend in the futures with major support and resistance at 25,580 and 28,440, respectively. A symmetrical triangle has formed, which could see a breakout either way. Positive data from the US in support of a potential rate pause could see a bullish breakout from the triangle to threaten resistance at 28,440 and 29,220. On the other hand, if inflation remains sticky, the bears could break the triangle for a move down toward 27,170. 

Summary 

The bulls hold the short-term momentum in the futures as the US CPI data nears. If the data supports a rate pause, the bulls could continue their momentum toward 28,190 and 28,340. Conversely, negative data could stunt the expansion and trigger a bearish move back toward 27,760. 

Sources: Koyfin, Tradingview, Reuters, Bloomberg UK