Blast furnace smelting liquid steel in steel mills. Image source: Zhao Jiankang © 123RF.com
The Official NBS Manufacturing PMI Index beat the initial estimations for June, which exhibits growth in aggregate demand and expansion of the Chinese industry. Both of these factors are necessary prerequisites for global economic recovery.
The index recuperated to 50.9 points towards the end of the second quarter after it had previously depreciated for two consecutive months. The final results surpassed the consensus forecasts by 0.5 index points.
Chinese Manufacturing PMI. Image source: TradingEconomics.com
The factory activity report demonstrated robust improvement in output, the most in three months, coupled with steady growth in new orders for the fourth consecutive month.
The recorded data manifested solid performances in all aspects connected to manufacturing, which is welcoming news after the Chinese government decided to lift most of its stringent lockdowns.
The observed stabilisation of Chinese manufacturing underlines growth in global demand as more and more countries ease their own restrictions. These promising numbers also underscore the pickup of global economic activity, which favours a U-Shaped recovery.
Nevertheless, if a severe second wave were to hit and prompt new series of lockdowns across the world, this could incite a further economic slump.
Essentially, the Chinese manufacturing index represents a gauge, which could be used by economists and policymakers to discern the most likely type of recovery. As of now, two baseline scenarios seem most probable – a smoothed U-Shaped recovery contrasted against a protracted W-Shaped recovery.
Meanwhile, the Chinese Yuan was momentarily strengthened immediately following the manufacturing data's publication. It has advanced by 0.20 per cent against the greenback so far during today's trading session.
As can be seen on the daily chart below, the USDCNY remains confined within a narrow consolidation range. The latter has the 23.6 per cent Fibonacci retracement level at 7.0990 as its upper boundary, and the 38.2 per cent Fibonacci retracement level at 7.0502 as its lower boundary.
The pair looks set to attempt breaking outside of the range's territory in the next several days. The expected softening in demand for the greenback could prompt the underlying price action to attempt breaking down below the range's lower limit next.
These projections are presently supported by the fact that the price action remains concentrated below the 10-day MA (in blue) as well as the 20-day MA (in orange).
Additionally, the bullish 1-5 impulse wave pattern is now decidedly concluded, which would potentially allow for the formation of a new bearish trend. That is if the underlying fundamentals remain favourable.
USDCNY 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
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