Nikkei 225 Index: Have we seen this chart before?

If the Nikkei 225 is going to move higher, it may look like the recent price action in GBP/USD!

Stocks (3)

The Nikkei 225 Index had been trading in an orderly, ascending channel since the pandemic lows on March 24th 2020 near 15998.  On February 16th, the index made a post pandemic high at resistance along the top trendline of the ascending channel near 30724.  Often when price tests resistance on one side of a channel, it will move to test the other side of the channel (hence, this is how a channel is formed). For the Nikkei, price began moving lower and broke through the bottom trendline on May 11th.  In doing so, price formed a shorter-term, corrective channel (red).    

Source: Tradingview, City Index

Now, let’s look at a daily chart of GBP/USD from mid-September 2020.  The pair been trading in an orderly, ascending channel since the lows on September 24th  2020 near 1.2667. On February 18th, price made a false breakout above the channel and  put in a pos pandemic high near 1.4241.  GBP/USD pulled back inside the channel on February 26th.  Often when price tests resistance on one side of a channel, (or in this case, price has a false breakout), it will move to test the other side of a channel.  For GBP/USD, price began moving lower and broke through the bottom trendline on April 29th.  In doing so, price formed a short-term corrective channel (red).

Source: Tradingview, City Index

What happened next?  On a 240-minute timeframe we can see that GBP/USD broke out of the corrective channel on May 7th near 1.3920, in the same direction as the prior trend (higher).  Price tested resistance at the prior highs of 1.4241 (green), however has failed thus far to push through that level.

Source: Tradingview, City Index

Could the Nikkei 225 Index act in the same manner us GBP/USD?  If so, price may be ready to break out of the corrective channel near 29395, which would be in the same direction as the prior trend (higher).  If the Nikkei does move higher, watch for it to test the highs from February 16th at 30724 (green).  However, if price does hold at the near-term resistance, look for it to test the bottom trendline of the channel, near 27250.

Source: Tradingview, City Index

Technical analysis is about price patterns repeating themselves and prices moving in trends, with corrective waves within the trends.  If the Nikkei 225 is going to move higher, it may look like the recent price action in GBP/USD!

Note that both the FOMC and the BOJ both meet later this week.  The results of either meeting could cause volatility in stock market indices, including the Nikkei 225.  See our complete Fed preview here.

Learn more about index trading opportunities.


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.