Nikkei 225 has retreated from strong resistance at 52,600pts, forming lower highs and lows on the daily chart. The index is drifting toward its multi-month rising trend line, with the 50-DMA near 47,600pts acting as key support. A failure to hold this level may open the way toward the next downside target at the 45,700pts gap, Société Générale's FX analysts note, Société Générale's FX analysts note.

Lower highs signal weakness in Nikkei 225

"Nikkei 225 encountered strong resistance near 52600pts earlier this month and has formed a series of lower peaks and troughs in daily timeframe chart. It is gradually drifting towards a multi-month ascending trend line; the 50-DMA at 47600pts could be a short-term support. It will be interesting to see if the index stages a bounce after testing this moving average."

"Inability to defend 47600pts may denote risk of a deeper decline. In such a scenario, the next objective could be located at previous up gap near 45700pts."