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March 22nd, 2012 at 12:08 pm

PMI Numbers Suggest Hard Landing for China.

In early trading, currencies reacted sharply to preliminary numbers of the HSBC China Manufacturing Purchasing Managers Index. This gauge of nationwide manufacturing activity fell to 48.1 in March compared with a final reading of 49.6 in February. It marks the fifth straight month the index has been in contractionary territory, signaling extended difficulties for the nation’s manufacturers. Markets begin to doubt the “soft landing” fable about China, and “hard landing” is more probable than before. Slowing economic growth, or even contraction, had immediate effect on the commodity currencies. The AUD-USD simply collapsed falling 100 pips to 1.0380 within minutes, while the NZD-USD suffered similar fate, losing 90 pips just as fast.

European currencies fared better, showing smaller losses. However, they experienced a selloff of their own once the London session started. Once again, the PMI data was the culprit. Preliminary PMI numbers from Germany and the Eurozone disappointed both Manufacturing and Services. Results for all four indexes released today were disappointing, not only below the forecast, but also under results from last month. The Euro, Franc and Pound suffered large losses versus both the Dollar and the Yen. Moves of 100+ pips were the norm.

Selloff of currencies in relation to the Yen played into my hands as I was looking for another short in the GBP-JPY. It happened sooner than expected, but at the anticipated level, or 132.10. After a slow start, the beast went on a prawl following the PMI releases in Europe, and the trade reached its 80 pips objective shortly after. All said, the GBP-JPY lost 350 pips in two days, which could be a start of a larger correction.

By now, the GBP-JPY pulled back to the 130 handle, which offers multiple supports – one is the previous high, and the other is in form of the 100 SMA on the 4H chart. The preferred development would be a rebound from here, confirming importance of this support, which would make eventual bearish breakout more significant. If these conditions are met, the next price swing down could easily be 200 fast pips. It will be interesting to see what currencies do during first half of trading day on Friday. The economic calendar is empty, with no scheduled data releases until the US session, meaning that volatility could be much lower from today. I will try my usual trades following the London opening, with objective in the 30-50 pips range, depending on which currency pair is involved.

Mike K.

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  • Alto
    9:14 pm on March 22nd, 2012 1


    Good trades, I decided to focus on CAD, took 180 pips on CADJPY. Friday for me is off day

    All the best.


  • admin
    5:30 am on March 23rd, 2012 2

    Good score, congratulations! Not a bad idea to take Friday off – they have been “strange” lately, although today is not bad. Have a nice weekend!

  • Spain on the Hot Seat. |
    10:43 am on March 25th, 2012 3

    [...] week I discussed trades in the GBP-JPY, and now it could be a good time for more short trades in Yen crosses. The NZD-JPY, for example, [...]


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