Nikkei Soars on Yen Weakness, Technical Breakouts

The Japanese Nikkei index has started October with a powerful rally, breaking through key technical levels and retesting previous resistance zones. This move coincides with renewed weakness in the yen, which is supporting export-heavy Japanese equities.

Historically, strong starts to October have often led to further gains for the Nikkei, but there is no clear 'October effect' that can be relied upon. In fact, a review of past data showed mixed results, with large gains and losses scattered throughout the sample.

Despite this, the technical picture remains bullish, with the index having broken through downtrend resistance and reclaimed key levels. The RSI (14) oscillator is overbought at 74, while MACD has staged a bullish crossover and accelerated further away from the signal line in positive territory.

While the broader technical picture remains supportive of long setups, there is an elevated risk of some form of pullback in the short term. The Nikkei may test support around 68,500 before looking to break through overhead resistance at 69,530 and potentially targeting a retest of the psychologically important 70,000 level.