WEEK 1

WHAT MOVED THE MARKET

Chinese Manufacturing PMI
31st May

Why is the Chinese Manufacturing PMI important?

The Chinese Manufacturing PMI is a leading indicator of China’s economic health. The purchasing managers hold perhaps the most current and relevant insight into the company’s view of the economy. Above 50.0 indicates industry expansion, while below 50.0 means contraction. Since a strong correlation between Chinese economic growth and the AUD exists, any signs of contraction will negatively impact the Aussie.

What happened last week?

The Aussie was sent under strong bearish pressure to as low as 0.6900 after Chinese Manufacturing PMI went under contraction territory (see Chart 1). The Chinese economy is suffering from trade wars, with Friday’s release showing China’s Purchasing Manufacturing Index (PMI) falling to 49.4 (vs. market forecast of 49.9) and below 50.1 prior. A closer look shows new orders are back into contraction territory, along with export orders plummeting dramatically. In addition, inventories are on the rise and output growth is slowing. The impact of this negative data amid escalating trade tensions and global economic growth concerns does not bode well for risk in general. Hence currency pairs with yen and commodity currencies will likely remain under pressure again as a pessimistic outlook for the Chinese economy remains dominant.

Chart 1: Chinese Manufacturing PMI

TECHNICAL ANALYSIS

AUD/USD

Figure 1: AUD/USD Daily Chart

Although AUD/USD has been experiencing a lot of bearish movement for the past few weeks, the market made a reversal on 23rd May with a rebounding to 0.69. However, the bullish momentum seems not strong enough and turned around to find signs of support again. The weak upward trend is supported by the MACD histogram, indicating a positive sign for AUD/USD in upcoming days. On the other hand, the overbought Stochastic RSI may suggest the potential of a short-term correction to the downside. Looking forward, the bullish trend is expected to slow down with a potential support at 0.69.

XAU/USD

Figure 2: XAU/USD Daily Chart

The strong bullish momentum was conveyed by the decisive close on this Friday (31st May) at 1305.09. This extreme upward momentum penetrated the key resistance level at 1300 and is likely to further support the appreciation in the upcoming week. As demonstrated by the MACD line, the potential of bearish crossover in the near future is small, instead the bullish trend may continue. Additionally, the rising bullish momentum is further supported through MACD histogram and the bullish crossover from the Stochastic RSI. Looking forward, 1280 is a potential short-term support level and the resistance is targeted at 1310.

Key Economic Announcements for the week ahead