Chinese Factory Worker. Image source: torng-der miaw, flickr.com
The surprising decline in Chinese factory activity would undoubtedly have a rippling effect across markets. As regards its impact on the U.S. dollar, it is likely to be moderate. Check out our latest analysis of the greenback for further details on its current sentiment.
The Chinese manufacturing PMI was reported at 49.6 index points in September, indicating that the industrial sector of the biggest economy in the world has contracted for the first time since the beginning of the coronavirus crash. This is below the preliminary market forecasts. Meanwhile, the Yuan continued to consolidate against the dollar.
USDCNY 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
As shown on the daily chart above, the price action of the USDCNY pair remains concentrated within the boundaries of a broad consolidation range. The latter spans between the 61.8 per cent Fibonacci retracement level at 6.4943 and the 38.2 per cent Fibonacci at 6.4418. Moreover, the price action is also concentrated below the descending trend line (in black).
The ADX indicator has been threading below the 25-point benchmark since the 15th of July, which confirms the solid range-trading conditions that currently prevail. This is the type of underlying environment that is usually characterised by sudden rebounds and reversals from the two limits of the consolidation range.
Given that the Stochastic RSI indicator is currently threading in its overbought extreme, there is a very high likelihood that the price action would continue depreciating towards the lower boundary of the range. However, if it manages to break down below 6.4418 decisively, the price action could then head even lower, towards the next psychological barrier. That is the 23.6 per cent Fibonacci at 6.4094.
Global recovery remains bumpy and uneven
The Official NBS Manufacturing PMI for China sunk to 49.6 index points in September, while the consensus forecasts were projecting a marginal decrease by 0.1 per cent from Augusts' 50.1 per cent. A reading below the 50.0 per cent threshold indicates that manufacturing activity is stagnating.
China MoM Manufacturing PMI. Image source: TradingEconomics.com
These results are made even more surprising given that factory activity in the U.S. over the same period jumped more than expected, highlighting the persisting bumps in the global recovery.
These disappointing numbers come following the weak retail sales in China, which is an attestation to the headwinds currently jeopardising the pace of China's economic stabilisation.
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