Market Analysis

Investors cheer Chinese Caixin PMI and robust US GDP numbers

Data released this morning showed China’s Caixin manufacturing PMI increasing to 49.9 in February, beating expectations of a 48.5. Although the number still suggests the nations manufacturing sector remains in contraction, it pointed to an overall easing of the economic downturn currently underway in the Chinese economy.

Manufacturing data from the world’s second-largest economy on Thursday showed the nations manufacturing PMI contracting for a third straight month in February. The official Chinese manufacturing PMI slumped to a worse than expected 49.2 last month, marking its lowest reading since February 2016.

Indices in mainland China had fallen over the worst than expected manufacturing reading, as investors feared that the slowdown in the Chinese economy was starting to worsen, while the Hang Seng Index in Hong Kong fell close to half a percent. However, Chinese bourses soon recovered on Friday, with the Caixin manufacturing PMI surprising investors and showing a clear divergence from China’s official manufacturing PMI.

China’s February PMI readings could also have been hit by a lack of economic activity during the Lunar New Year, with many Chinese businesses shutting down for up to two weeks. China’s official non-manufacturing PMI fell to 54.3 last month, which was below market expectations and worse than previous months 54.7 reading.

The US Dollar received a strong boost, after US GDP data came in much better than expected on Thursday, erasing fears that the United States government shutdown hampered US economic growth in the last fiscal quarter. The USD/JPY pair moved to its highest trading level since December 2018, with the risk-sensitive pair closing above it’s 200-day moving average for the first time this year.

Market optimism also remains high that negotiators from Beijing and Washington can still find time to work out a meaningful trade deal between the world’s two largest economies this month. The latest update from the US trade representative’s office said that negotiators were working towards abandoning plans to increase the tariffs on $200 billion of Chinese goods. Both parties have been engaged in fresh talks since President Trump delayed the planned increase on tariffs last Sunday.


USD/JPY Daily Mountain Chart | Source: ActivTrader Platform

USD/JPY Daily Mountain Chart | Source: ActivTrader


Now that the USD/JPY pair has broken above the 111.40 level, further upside towards the 114.00 level remains possible over the medium-term. Immediate technical resistance is found at the 112.20 and 112.80 levels. If sellers force price back under the 111.10 support level, we could see the USDJPY pair trading back inside its former trading range between 110.20 to 111.10 levels.


Written by Nathan Batchelor, External Analyst


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