China Manufacturing PMI above 50, but for how much longer?

If the trend continues, the readings will soon be below 50, indicating China’s manufacturing sector will be contracting!

China

China released its NBS Manufacturing PMI for February.  The reading was 50.6 vs an expectation of 51.1 and January’s print of 51.3.  This ties the smallest increase in manufacturing activity since May 2020, immediately following the pandemic in China.  In addition, the Caixin Manufacturing PMI (a private company survey) showed similar results with a reading of 50.9 vs 51.5 expected and 51.5 in January.  It is also the lowest reading since May of last year.  Given the rise in commodity prices as of late, the price components for both readings continued to rise as well (inflation?).  In addition, the reading for both surveys has been trending lower since November.  A reading above 50 indicates that the economy is expanding.  A reading below 50 means the economy is contracting.   If the trend continues, the readings will soon be below 50, indicating China’s manufacturing sector will be contracting!

Forex market hours: when is the best time of day to trade forex?

USD/CNH had been moving lower since May 2020, in an orderly downward sloping channel from a high of  7.1964 on May 27th to a low of 6.4008 on February 15th.  Price ended the year near 6.4885 and began moving sideways.

Source: Tradingview, City Index

Since the beginning of 2021, USD/CNH began moving sideways and as a result, moved out of the downward sloping channel.  The pair has been tame this year, trading in a band between 6.4116 and 6.5027, with a few brief breaks though either side of the zone. However, as of February 15th, after a false breakdown below the range, USD/CNH began moving higher in an upward sloping channel.  Price is currently trading near the bottom trendline of the upward sloping channel, which also confluences with the 38.2% Fibonacci retracement from the February 15th lows to the February 25th highs, near 6.4661. If bulls can continue to push USD/CNH higher off this support level, resistance is back at the February 25th highs near 6.5078.  However, if price moves lower, bulls may still be willing to enter down to the 61.8% Fibonacci retracement level, near 6.4403.  Bears will be looking for bounces towards the recent highs to add to short positions.

Source: Tradingview, City Index

China data will be quiet until the weekend when Trade Balance and Foreign Exchange Reserves are released.  However, USD/CNH is drifting higher towards the top of the channel in the short-term.  However, February’s PMI data showed that the current trend is continuing lower.  If it breaks below the all-important expansion/contraction 50 level for March, the PBOC may decide they need to start buying more US Dollars!

Learn more about forex trading opportunities.


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.