USD/CNH: Pressured below 7.1100 after China Purchasing Managers Index
- USD/CNH fails to hold onto recovery gains.
- China’s official PMIs surprised markets with positive figures.
- World Bank recently downgraded China’s 2020 GDP forecast, PBOC adviser signals ‘flood-like’ stimulus.
- Risk-tone remains mildly positive.
While taking clues from the surprisingly positive China activity data, USD/CNH snaps the previous two-day recovery while declining to 1.1080 amid early Tuesday.
China’s March month official Manufacturing and Non-Manufacturing PMIs surprised marked by crossing 50.00 mark against expectations of further contraction amid coronavirus (COVID-19) woes. While the headline Manufacturing PMI crossed 45 forecast and 35.7 prior with 52.00, the Non-Manufacturing PMI rose to 52.3 compared to 37.8 expected and 29.6 earlier reading.
While the official data favors the recovery of Chinese yuan, updates from the PBOC adviser and World Bank seem to cap the pair’s declines.
An external adviser to the People's Bank of China’s (PBOC) monetary policy committee (MPC), Ma Jun, said that setting a GDP target may force China to resort to flood-like stimulus. Additionally, the policymakers said that GDP growth between 4 to 5% will be difficult to achieve for China. On the other hand, World Bank downgraded China’s 2020 GDP forecast to 2.3% versus 6.1% reported for 2019.
It should also be noted that the market’s risk-tone remains mildly positive with comments from US President offering a smooth carrying of the previous day’s risk reset. That said, the US 10-year treasury yields seesaw around 0.70% with most Asian markets, also in China, marking profits by the press time.
Following the busy morning in Asia, mainly due to the comparatively heavy economic calendar, investors may now return to COVID-19 news while searching for fresh direction.
Technical analysis
A seven-day-old falling trend line near 7.1225/30 guards the pair’s immediate upside whereas February month high close to 7.0570 could please the sellers during the further weakness.