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During the trading session on Tuesday, we seen Tokyo sell off quite drastically as the Nikkei 225 fell rather significantly to test the 50 day EMA. I think a lot of traders will be focusing on the 37,500 yen region. This is an area that has been important previously and the 200 day EMA sits just below there.
All things being equal, this is a market that could very well see a bit of a bounce in this area, but I'm also looking at this as a situation where traders will be looking for a bit of stability. If we break down below the 200 day EMA, then it's likely that we could really see this market flush lower.
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Keep in mind that there have been a lot of concerns about a strengthening Japanese yen at times, and that's part of what caused the Nikkei 225 to fall apart previously. And now we have questions as to whether or not Chinese demand is going to fall because if it does, it'll drag the rest of Asia with it, including Japan.
Are We Just Bouncing Around
As things stand right now, it looks like we are just bouncing around in a 2000 yen region with the 37,500 yen level underneath being support and the 39,500 yen level above being resistance. As we are hanging around in this area, it'll be interesting to see what happens, but I do think we have a situation where the market is likely to look at a breakout of this area as a signal of something bigger. If we don't get that, then you're just looking at short-term range bound trading, which is how a lot of assets could trade at the beginning of September as we wait for more liquidity. In this environment, it is likely that the Nikkei 225 will continue to see the movement of the yen as where we might go going forward. With this, the expensive yen works against the Nikkei 225, but the lack of demand in Asia could come into the fray as well.
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