Positive Chinese Data & CNH Nearing 7.0 Barrier

Jan 03, 2:03 pm
China's inflation_0803

China’s kicked off the year with positive economic releases, while its currency continued to decline further. The US Dollar also continued to rise across the board, while metals are stabilizing. Yet, Crude Oil added more than 1% in its first trading session of the year. In today’s article we will look at the Chinese and the UK data, what does it mean for the local currencies, PBoC and the BoE.

Definition

Manufacturing PMI: Level of a diffusion index based on surveyed purchasing managers in the manufacturing industry. Above 50.0 indicates industry expansion, below indicates contraction. There were 2 versions of this report between Feb 2011 and Sep 2015, Flash and Final.

Why This Is Important?

It's a leading indicator of economic health - businesses react quickly to market conditions, and their purchasing managers hold perhaps the most current and relevant insight into the company's view of the economy

China: Survey of about 430 purchasing managers which asks respondents to rate the relative level of business conditions including employment, production, new orders, prices, supplier deliveries, and inventories

UK: Survey of about 600 purchasing managers which asks respondents to rate the relative level of business conditions.

Outcomes

Indicator

Actual

Forecast

Prior

China Caixin Manuf. PMI

51.9

50.9

50.9

UK Manufacturing PMI

56.1

53.3

53.6

The UK and China kicked off the year with positive outcomes, China posted the highest reading since 2014 despite the fact that the estimates were to remain stable at 50.9 as shown above.

As for the UK, the outcomes came in contrary to the market estimates, rising o the highest level since June of 2014, despite the fact that the estimates were to retreat back to 53.3. This is also the first monthly increase after two months of consecutive declines.

What Does It Mean?

Despite the positive data, both central banks PBoC and BoE are expected to keep their curet policies unchanged.

In China, the Yuan continued to decline, nearing the barrier that we talked about in the previous reports at 7.0 which should be watched very carefully over the coming days. As a break above that resistance would lead to further weakness ahead.

As for the British Pound, today’s data eased GBPUSD morning declines and now the pair is back in green. However, the general outlook remains bearish on most timeframes especially with the current QE policy. Therefore, selling rallies seems to be favorable by traders.

What To Watch Next?

Traders needs to be aware of the first few days of the new year. Banks, financial institutions and hedge funds settled their 2016 books, which led to a notable move at the end of last year, these firms are likely to start positioning in the markets again based on their expectations for the new year. Therefore, another wave of volatility is more likely over the coming days. Therefore, traders are advised to minimize their risk at least until the end of the second week of the year.

Levels To Watch For Major Currencies

Symbol

S3

S2 S1 Pivot R1 R2 R3

EURUSD

1.0338 1.0392 1.0426 1.0480 1.0514 1.0568 1.0602

GBPUSD

1.2157 1.2212 1.2244 1.2299 1.2331 1.2386 1.2418

USDJPY

115.95 116.33 116.93 117.31 117.91 118.29 118.89

USDCHF

1.0106 1.0136 1.0185 1.0215 1.0264 1.0294 1.0343

AUDUSD

0.7082 0.7121 0.7153 0.7192 0.7224 0.7263 0.7295

NZDUSD

0.6844 0.6876 0.6901 0.6933 0.6958 0.6990 0.7015

USDCAD

1.3332 1.3359 1.3399 1.3426 1.3466 1.3493

1.3533

 
Nour Eldeen Al-Hammoury

Nour Eldeen Al-Hammoury has more than ten years of experience in focusing on foreign exchange and global economic developments, as well as central bank policies and intermarket analysis (global markets relationships). Nour Eldeen is a regular on many major TV networks (several times each) such as: BBC Radio, BBC World News, Al-Jazeera, Al-Hurra TV CNBC Europe, CNBC Asia, CNBC Arabia, Al Arabiya, Bloomberg, Russia Today, Dubai TV, Sama Dubai, Skynews Arabia, Qatar TV and Future TV News.