AUD/USD – Higher on positive China PMI

Official Chinese Manufacturing PMI came in at 50.1, matching expectations but sharply lower than May’s 50.8. Nonetheless, AUD traders are loving it, pushing AUD/USD higher and sending price above the 0.916 ceiling. However, the pullback that followed (not visible on Hourly) was equally significant, with price trading below 0.916 quickly, and bulls only managing to clear the barrier towards the end of the hourly period. This is interesting considering that HSBC printed its final Manufacturing PMI figures for the same Jun period at 9:45am Beijing, which was slightly worse than expected at 49.2 versus previous estimates of 49.3. Perhaps the market is placing more weight on Chinese official figures versus a privately done survey, but that has not been the case in the past, especially since official figures from China tended to be more “optimistic”. This also does not explain why the initial push post the official print was met with strong resistance, hence we are forced to accept that the rally perhaps has more to do with a technical move rather than based on a shifting sentiment on China outlook.

Hourly Chart

If the above assertion is true, the likelihood of price pushing above current descending Channel would be higher compared to a rebound lower off Channel Top. Firstly, this Channel is not exactly well drawn, with prices trading above and below Channel Top/Bottom respectively for an extended period of time. As such, the relevance of current Channel Top is already impaired. Secondly, trading above the 0.916 opens up a possibility for price to move towards 0.921-0.923, while current Stochastic reading suggest that a bullish cycle is in full swing. Couple all these technical signals with the fact that market is shrugging off a Par/Slightly negative read on latest economic data, bias should be placed on the bull side. However, all these could be jeopardized if current candle push back into the Channel and break 0.916 in one accord. Hence conservative traders may wish to wait for a confirmation of Channel Top support holding for increased likelihood of a continued bullish scenario for today (or at least for the rest of Asian Session).

With RBA rate decision looming tomorrow, we could see strong movements post decision announcement. RBA is not expected to cut rates this time round, but traders may still be able to gain cues on whether another rate cut would be likely in 2H 2013 according to the wording used in the accompanying statement. The key is to look for reaction not immediately after the statement release, but rather how bulls/bears react after the dust have settled in order to gleam a better understanding of whether current sentiment is bullish or bearish. Based on today’s China’s data reaction, sentiment is mildly bullish, and it would be interesting to see if the current mild bullish sentiment can fan into a stronger one tomorrow, or perhaps swing sentiment which may allow price to push below 0.9110 as an extension of the bear trend seen in 2013.

More Links:
Nikkei 225 – Lower despite 1st positive Tankan print since 2011
Week In FX Americas – Loonie Loses Rock Star Status
Week In FX Europe – Market Cannot Side-Step All Fed Rhetoric

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