USD/CNY bearish flag continues after strong China manufacturing PMI

USD/CNY bearish flag continues after strong China manufacturing PMI
Written by:
Crispus Nyaga
November 30, 2020
  • The USD/CNY price is forming a bearish flag pattern after China released strong manufacturing PMI data.
  • The manufacturing PMI increased to 52.1 in November, the 9th straight month of gains.
  • Non-manufacturing PMI rose to 56.4 in November from 56.2 in October.

The Chinese economy continued to fire on all cylinders in November as demand from local and internal sources increased. The USD/CNY is trading at 6.5826, which is more than 8% below this year’s high of 7.1785.

USD/CNY
USD/CNY reacts to China manufacturing data

China manufacturing PMI rises for 9 straight months

China is well-known for its manufacturing sector. Its products, ranging from smartphones to clothes and masks, have a significant market share internationally. Therefore, the well-doing of the country’s manufacturing is used as a gauge of the global economy.

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In a report earlier today showed that the manufacturing PMI rose to 52.1 in November from 51.4 in the previous month. That increase was better than the 51.5 estimates by economists polled by Bloomberg.

A PMI reading of 50 and above is usually a sign that the sector is improving. The Chinese PMI has been above this level for the past nine month, which is further evidence of the strength of the economy.

The data, released by the National Bureau of Statistics, showed that the production sub-index rose to 54.7 while total orders remained unchanged at 53.9. The exports index rose to 51.5. In a report after the data, analysts at ING wrote:

“We keep our 1.7% GDP growth forecast for 2020 followed by 7.0% growth in 2021 due to 1) a low base effect from 2020; 2) continual economic growth from domestic demand; and 3) hopefully a better external environment from vaccines for Covid-19 and a Biden US government.”

Meanwhile, the USD/CNY also reacted to the strong non-manufacturing sector PMI, which increased to 56.4 from 56.2. Economists were expecting the PMI to fall back to 56.0.

Tomorrow, an independent manufacturing PMI reading from Markit and Caixin Global will come out. Economists expect the data will show that the PMI dropped from 53.6 to 53.5 in November. That will still be a sign that the country’s economy is doing better than average.

Later today, the investors in forex will react to the US pending home sales numbers that will come out at 15:00 GMT. Analysts expect the data to show that sales rebounded by 1.0% after dipping by 2.2% in the previous month.

USD/CNY technical outlook

USD/CNY
USD/CNY technical chart

On the daily chart, we see that the USD/CNY pair has been in an overall downward trend since May this year. In the past few days, however, the price has been in a consolidation phase and is on the same level as the 15-day moving averages. This consolidation seems to be relatively similar to a bearish flag pattern. It is also below the 25-day EMA. Therefore, the pair will likely break-out lower in the next few days.