Nikkei Nears Record High on US-Iran Ceasefire Hopes

The Nikkei 225 moved closer to its record high after an 18% rally from a March 31 low of 50,395. The index held above its 200-day moving average near 48,250 and has trimmed earlier losses; measured from Feb. 27 to April 15 the index is down about 1.2%. Prices have risen above the 20-day and 50-day moving averages and the index is testing the all-time high band around 59,890–60,075, levels last seen on Feb. 26.

Changes in the Japanese government bond market accompanied the equity gains. Since April 6 the 2-year JGB yield has fallen by about 6 basis points while the 10-year yield dropped roughly 4 basis points, producing a steepening of the 10-2 spread. The 10-year yield has traded above its 200-day average near 0.84% and was about 1.05% at the time of reporting, a multi-year high.

Kelvin Wong, senior market analyst at OANDA, wrote that ‘a continuation of the steepening would likely support further upside for the Nikkei.'

Diplomatic developments also affected market sentiment. Negotiations between the United States and Iran faltered over the weekend but did not produce an immediate escalation. Both sides discussed extending a ceasefire deadline set for April 21 by two weeks to allow another round of talks. The Strait of Hormuz remains blocked, reducing oil flows.

Technically, short-term support is near 57,830 and 57,274. An hourly close below 57,274 would negate the minor bullish bias and could lead to a corrective move to 55,695, near the 50-day moving average, and then to 55,130–54,600, around the 20-day moving average. On the upside, Fibonacci extension levels at 60,832 and 62,044 are being watched. The hourly relative strength index registered an overbought reading without a bearish divergence.

Market participants are monitoring US-Iran talks, oil flows through the Strait of Hormuz and JGB yield movements for signals on near-term price direction.