Dow Jones falls, the Nasdaq 100 wins ahead of the Fed. Nikkei 225 eyeing the BoJ

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Dow Jones, Nasdaq 100, Nikkei 225, FOMC, BoJ, Technical Analysis – Asia-Pacific Indices Briefing

  • The Dow Jones fell as the Nasdaq 100 gained after a choppy session as volatility cooled
  • Nikkei 225 considers Bank of Japan, but could remain vulnerable to external risks
  • Sentiment could remain limited until FOMC monetary policy is announced

Recap of Tuesday’s Wall Street Trading Session

Wall Street shares mostly closed lower in Tuesday’s North American trading session, reversing the gains initially seen at the opening. The Dow Jones, the highly technical Nasdaq 100 and the S&P 500 closed at -0.15%, + 0.10% and -0.08% respectively. It was also in stark contrast to Monday, where the major benchmarks recorded some of the worst daily performances since May.

The reluctance of investors to “buy the downside” could be due to the imminent risk of an economic event. This is primarily the Federal Reserve’s decision on interest rates. As the central bank moves closer and closer to gradual quantitative easing, the global economic environment has arguably deteriorated. Rising Covid cases, relatively high inflation, and slowing estimates of GDP growth in the United States and China are creating uncertainty.

Meanwhile, Chinese real estate giant Evergrande appears to be on the verge of failure, with heated debate over whether or not there might be contagion and systemic risk. All of this creates the perfect scenario for some equity market profit taking, given healthy returns since last year’s trough following the Covid-induced peak.

Dow Jones Technical Analysis

The Dow Jones extended its losses following the breaking of a bearish ascending wedge chart pattern, as expected. Prices were unable to contain losses below key support point 33623, which was July 19e moo. Indeed, the 200-day simple moving average is just under 2% from the price close on Tuesday. Clearing the SMA may open the door for a wider reversal, but it may also re-establish the dominant upward orientation.

Dow Jones Futures – Daily Chart

Chart created in TradingView

Wednesday Asia-Pacific negotiation session

Wall Street futures are pointing lower ahead of Wednesday’s Asia-Pacific trading session, opening the door for further deterioration in sentiment. A key event risk, especially for the Nikkei 225, could be the Bank of Japan’s monetary policy announcement. Given the central bank’s fairly static approach to policy, even before Covid, little noise can come from here.

He will be curious to see if Governor Haruhiko Kuroda has anything to say about the resignation of the country’s Prime Minister, Yoshihide Suga. This has sparked speculation in favor of more fiscal stimulus. This remains uncertain, however, and may not yet have an immediate impact on monetary policy. Until the Fed crosses the line, risk appetite may remain fairly limited.

Nikkei 225 technical analysis

Nikkei 225 futures seem increasingly vulnerable to a short-term decline. Prices recently rejected the ceiling of what appears to be a bullish rectangle chart pattern in the works. This creates a resistance zone between 30345 and 30725. Prices are considering the 20 day SMA which could cause prices to pivot higher. After all, a bullish Golden Cross formed with the 50-day line earlier this month. The triangle floor appears to be an area between 26860 and 27580.

Nikkei 225 Futures – Daily Chart

Dow Jones falls, the Nasdaq 100 wins ahead of the Fed.  Nikkei 225 eyeing the BoJ

Chart created in TradingView

— Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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