Nikkei 225 stalls below 40,000 as triangle compression nears breakout trigger
Nikkei 225 consolidates within triangle, traders eye breakout amid policy and trade uncertainty
The Nikkei 225 ended the July 18 session nearly flat at 39,819, slipping 0.02% as traders weighed geopolitical risk and policy expectations heading into a potentially pivotal weekend. The index remained confined within a narrowing symmetrical triangle on the 4-hour chart, continuing a consolidation phase just below the psychological 40,000 level.
Highlights
- Nikkei 225 closes at 39,819, locked in symmetrical triangle ahead of Upper House election
- June trade data disappoints, weighing on sentiment amid U.S. tariff uncertainty
- Tech losses deepen but BoJ rate hold hopes offer near-term support
This pattern, developing since late June, points to an imminent breakout once price moves beyond compression limits. Despite Thursday’s high marking a two-week peak, price once again failed to sustain momentum above 40,000. The session closed near the triangle midpoint, indicating indecision among bulls and bears.
Nikkei 225 index forecast (Source: TradingView)
Yet, broader structure remains bullish. The index continues to trade above the 20 EMA at 39,684 and 50 EMA at 39,312, both sloping upward. The 100 and 200 EMAs near 38,655 and 38,138 provide deeper support. A breakout above the triangle's upper boundary at 40,540 would likely signal a renewed push toward 41,200 and potentially 41,800. On the downside, failure to hold above 39,300 could shift sentiment bearish, bringing the 100 EMA into view.
Market jitters ahead of election and trade deadline
Fundamentals also contributed to market hesitation. Disappointing June trade data showed a sharp drop in Japanese exports to the U.S., increasing anxiety around August’s trade negotiation deadline. Meanwhile, investors remained cautious ahead of the weekend’s Upper House election, preferring to reduce exposure in sectors vulnerable to policy shifts. Electronics and chipmakers led the decline, with Disco Corp plunging 8.8%, Advantest down 4.4%, and Sony losing 1.9%. However, easing inflation data has bolstered expectations that the Bank of Japan may delay further policy tightening, providing a backstop for equities.
In our earlier analysis, we highlighted the ongoing symmetrical triangle structure and the need for a breakout beyond 40,540 to confirm bullish continuation. With compression now reaching its apex and price respecting key moving averages, the next directional move may arrive early next week.
