China lockdowns hit PMI data

Before China left for the long holiday, Caixin released its Manufacturing PMI for April , and the data wasn’t pretty. The headline reading was 46 vs and expectation of 47 and a March reading of 48.1 This was the third month since the beginning of 2022 that the print has been below the 50 level, which is considered the contraction/expansion level. Earlier today, Caixin released the Services PMI for April, and it was even worse. The headline print was 36.2 vs 42.1 expected and 42 in March. This is well below 50 contraction/expansion level. It was also the lowest print since the pandemic began in February 2020. The official China PMI data was similar. This is just more evidence of the slowdown occurring in China as a result of the recent lockdowns and restrictions put into place as a result of the Zero Covid policy.

USD/CNH had been moving lower in an orderly fashion after putting in a high of 7.1987 during the week of May 25^th, 2020. After reaching a low in February 2021 near 6.400, the pair began moving sideways outside the channel. The move resolved itself in a year-long descending wedge from May 2021 to April 18^th of 2022. The target for the breakout of a descending wedge it a 100% retracement of the pattern. As USD/CNH broke above the top, downward sloping trendline, the pair began moving higher with gusto, reaching the target of the pattern in only 2 weeks! In addition, price moved above the 38.2% Fibonacci retracement level from the highs of May 2020 to the lows of February 2022, near 6.6461. Today price reached its highest level since early November 2020 at 6.6979. Notice on the weekly timeframe that the RSI is in overbought territory, an indication that price maybe ready for a pullback.

Source: Tradingview, Stone X

Trade USD/CNH now: Login or Open a new account!

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore

On a 240-minute timeframe, USD/CNH has formed a flag pattern. The target for a flag pattern is the length of the flagpole added to the breakout point of the flag, which in this case is near 6.9400. However, if price is to get to the target, it must first break through resistance at the top of the flag (and today’s highs) at 6.6979. Above there, resistance is at the 50% retracement level of the above-mentioned timeframe near 6.7511, and then a confluence of resistance at previous lows from January 2020 and the 61.8% Fibonacci retracement level between 6.8456 near 6.8562. First support is at the bottom trendline of the flag pattern near 6.6158, then horizontal support at the top of the descending wedge near 6.5875 (see weekly). Below there, USD/CNH can fall to additional horizontal support at 6.4242 (see weekly).

Source: Tradingview, Stone X

The lockdowns in China have led to weaker manufacturing and services data. Is this just the beginning or is there more to come? As a result, the Yuan has weakened, and USD/CNH has gone aggressively bid. The shorter-term chart shows the pair is consolidating in a flag formation, while the longer-term chart shows an overbought RSI. If price continues to move sideways, watch for the longer-term RSI to unwind, which will allow the pair to move to the flag target near 6.9400!

Learn more about forex trading opportunities.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.