Forex Trading Library

Nikkei – End of Correction or a Bounce

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The pandemic has caused ripples in equity markets, and indices everywhere have been getting the brunt of it all.

After huge losses initially, there has been relief provided by central banks around the world. These have slashed interest rates to record lows and increase stimulus.

As seen in other major indices, JP225 is making a recovery. The weekly chart looks ripe to get a test of the main break down trendline (blue) coming roughly to the 20,400-600 regions.

It has already done the moderate test to the dotted lines, where the last week high lies.

The 2-hour chart below shows the current sideways price action. The blue trendlines represent a bullishly biased channel, whereas the red ones represent a bearish channel. The latter is where the current price action is taking place.

An ideal scenario would be for the prices to hold above the short-term trendline (dotted lines). In case of a break below, the next level to hold for the main structure to remain bullish will be the bottom channel trendline.

Once we get a test to the main resistance on the weekly, we will get to find out if this has been a mere correction, or if we are heading back to the main trend which has been to the higher side.

A break above would encourage more gains for all-time highs.

Alternatively, if this ends up being a correction, we can expect moves down for new lows.

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