China’s economy is expanding again, according to official data (USD/CNH)

The National Bureau of Statistics China (NBS) released PMI data this week which shows both the manufacturing and services sector are expanding.

Appetite for risk has enjoyed a great to start to the year, mostly thanks to China reopening and abandoning their covid-zero policy. It was a key reason as to why the International Monetary Fund (IMF) chose to not downgrade global growth forecasts for the first time in a year, and tentatively call for a ‘turning point’ in the global economy. And that is so far being backed up by data coming from China.

This week we have seen four headline PMI survey released covering manufacturing and services, three of which have beat expectations and expanded. If PMI’s are above 50 is denotes expansion and I favourable for growth prospects in the future. Admittedly manufacturing is the laggard as the NBS print only expanded by 50.1 (and Caixin’s read remains within contraction at 49.2), yet both service PMI’s accelerated higher.

In fact, the NBS service PMI added 12.8 points m/m, which is its highest monthly increase since the depths of the pandemic in 2020.

The Caixin prints are a privately run survey, and can be useful to monitor alongside NBS data to get a feel for the overall trend. Something which stands out is that the Caixin survey has mostly had manufacturing within contraction for the nest part for two years, yet their services PMI tends to track the oscillations of NBS and Caixin service PMI’s very well. Given the past four cycle average 8.5 months, which suggests the current business cycle in China could trough around September or October his year. Unfortunately, peaks are far less reliable to measure, but we can see momentum is pointing firmly higher, which bodes well for H1 this year.

USD/CNH yield differentials and daily chart:

Yield differentials between the US and China 2-year treasury note continue to suggest USD/CNH could be oversold, at least over the near-term. The daily close chart (above in black) also better shows the potential for a higher low, as part of a countertrend move.

The daily candlestick chart shows a recent pullback has failed to retest the 6.6976 low, and yesterday formed a 2-bar bullish reversal pattern (bullish piercing line). Whilst prices remain within a small retracement channel, we’re now looking for a break higher and minimum move to the highs around 0.6800 (near the monthly pivot point, 100% projection and recent highs).

Should it break higher, then the it has the potential to extend to the 138.2% or 161.8% projection levels, the latter of which is by the 200-day EMA.

Further out, I doubt Beijing will want their currency to depreciate too much given weak export data, so its possible the anticipated move higher is simply a countertrend move which could later break to new cycle lows.

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.