Even if 1 dollar falls below 100 yen, stock prices have downside support - Hiroshi Kono’s "From the Technical Room"

Publication date: 2016/08/17 07:56

In the past month, the dollar-denominated Nikkei Average has
moved from the high 150s to the mid-160s

It again recorded around 99 yen per dollar in after-hours trading
. It had previously hit 99 yen per dollar on 6/24 when the decision for Brexit was made,
and the Nikkei Average (futures) fell to 14,790. However, in last night’s after-hours
trading, the low was only around 16,510. The relationship between the dollar/yen exchange rate and the Nikkei average has Changed significantly over these two months.
Including after-hours trading, when the yen strengthens beyond 101 per dollar,
I checked the lower levels of the Nikkei futures and observed the changes between the two.





Dollar/Yen　Nikkei Average　Dollar-denominated
6/24　99.00　14,790　149.4

7/06　100.20　15,090　150.6
7/07　100.60　15,210　151.2
7/08　99.99　15,070　150.7
7/11　100.56　15,450　153.6

8/02　100.68　15,990　158.8
8/03　100.75　15,940　158.2
8/04　100.86　15,880　157.4
8/05　100.88　16,170　160.3

8/10　100.97　16,630　164.7
8/12　100.83　16,770　166.3
8/15　100.87　16,820　166.7
8/16　99.54　16,510　165.9

As above, the 101 yen level was breached on the 13th,
and after the July decision and the Bank of Japan’s ETF purchases increase,
the relationship between the dollar/yen and the Nikkei stock price (in dollar terms)
has clearly changed. In July, with a yen appreciated to around 100, the stock price declined to around 15,000,
while the dollar-denominated price was around a little over 150 dollars. In the first week of August,
the low was around 16,000 and about 158 dollars, so the downside was limited. Currently,
the dollar-denominated price is around 165–166 dollars, and as of now the Nikkei Average
remains in the mid-16,000s even if it falls.




In a market with little movement

If the yen strengthens to around 100 per dollar, the concern about a breakdown of the floor has
receded. A floor appears more solid, but with little positive catalysts to drive buying, upper resistance is also real. The market is becoming difficult to move both up and down. A range-bound market has persisted for about the last six months,




but the upper and lower bounds are narrowing further, raising concerns that the market could become unable to move.

From here, see荒野浩's 'Technical Room' column for more details.