The Nikkei 225 Futures (CME: NIY) trickled lower due to inflation data in China and a hawkish Federal Reserve. China’s inflation rate sits firmly at 0%, remaining on the brink of deflation despite attempts by the People’s Bank of China (PBOC) to bolster the economy with interest rate cuts and cash injections.
China’s PPI dropped from -4.6% to -5.4%, lower than the projected -5%. Since the lockdown, China has struggled to revitalise its economy, with consumer demand shrinking as people prioritise saving over spending. This has led to an oversupply of goods, resulting in declining prices. Furthermore, the Federal Reserve’s cautious approach regarding potential interest rate hikes has contributed to the fall of the futures, adding to the effect of disappointing labour market data in the United States. Will China manage to avert deflation, or will the Federal Reserve’s cautious stance further deflate the index?
Technical
The 4H Chart shows that the Nikkei 225 Futures trickled lower from the swing high established at 33695. The bears narrowly avoided the major resistance, pulling the futures back towards the 32315 resistance at the 50% level and gaining momentum since the price level intersected with the 50-day moving average.
If the 50% level fails to hold, a breakdown towards the 31945 support at the Golden Ratio may be a point of interest for further downside momentum towards the 31420 support at the 71.60% Fibonacci Retracement. However, the 50% level may hold, which may encourage the bulls to retest the 32680 resistance at the 38.20% Fibonacci Retracement where the 33875 major resistance may become a point of interest for further upside possibilities.
Summary
The Nikkei 225 Futures trickled lower due to a struggling Chinese economy and a hawkish Fed. Deflationary pressure may encourage the bears to drive the index to lower levels of support if the 32315 resistance fails to hold. However, the current leg up could see a move towards the 33695 resistance.
Sources: TradingView, CNBC, CNN
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