Concise market analysis for the coming year – your Outlook 2021 is now online. First, read: End of Brexit Transition and Impact of C19 Vaccines on the Market.
March 1, 2021 6:02 p.m.
China released its NBS Manufacturing PMI for February. The reading was 50.6 versus an expectation of 51.1 and a January print of 51.3. This is the smallest increase in manufacturing activity since May 2020 in the immediate aftermath of the pandemic in China. In addition, the Caixin Manufacturing PMI (a private company survey) showed similar results, with a score of 50.9 versus 51.5 expected and 51.5 in January. It’s also the lowest since May last year. In view of the recent rise in the price of raw materials, the price components for both measured values also continued to rise (inflation?). In addition, the value for both surveys has been lower since November. A value above 50 indicates that the economy is expanding. A value below 50 means the economy is shrinking. If the trend continues, readings will soon be below 50, indicating that China’s manufacturing sector is set to shrink!
USD / CNH has been moving in an orderly downward channel since May 2020 from a high of 7.1964 on Jan. May hit a low of 6.488 on February 15th. Price ended the year near 6,4885 and started moving sideways.
Since early 2021, USD / CNH has moved sideways, exiting the downward channel as a result. The pair have been tame this year, trading in a band between 6,4116 and 6,5027 with some brief pauses on either side of the zone. However, starting February 15, USD / CNH started rising higher in an upwardly sloping channel after a false break below the range. The price is currently trading near the lower trendline of the upside down channel, which also coincides with the Fibonacci retracement of 38.2% from the February 15 low to the February 25 high near 6.4661. If the bulls can continue to push USD / CNH up from this support level, resistance will be back at the February 25 high near 6.5078. However, if price moves down, the bulls may still be ready to hit the 61.8% Fibonacci retracement level near 6.4403. Bears will be looking for bounces towards recent highs to add short positions.
Data for China will be calm until the weekend when trade and foreign exchange reserves are released. However, USD / CNH is moving higher towards the top of the channel in the short term. However, February PMI data showed that the current trend is still lower. If it falls below the all-important expansion / contraction level of 50 for March, the PBOC may decide it needs to start buying more US dollars!
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