AUD/USD: Trading the Chinese Flash PMI May 2014

Chinese Flash Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in the manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in China. A reading which is higher than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD.

Published on Thursday at 1:45 GMT.

Indicator Background

Traders should pay close attention to this key release, as China is Australia’s number one trading partner, and an unexpected reading can quickly affect the direction of AUD/USD.

The PMI has been below the 50-point level throughout 2014, indicative of ongoing contraction in the Chinese manufacturing sector. The March reading came in at 48.3 points, almost matching the forecast. A similar figure is expected in the upcoming release.

Sentiments and levels

The recent RBA minutes stated that interest rates will remain low as economic growth is projected to be weak. As a result, the Aussie lost ground. Meanwhile, US numbers have been solid and employment numbers continue to improve, so the Fed’s taper scheme is likely to continue. So, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.9442, 0.9638, 0.9283, 0.9180, 0.90 and 0.8893.

5 Scenarios

1. Within expectations: 45.0 to 51.0: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 51.1 to 54.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 54.0: Given the current trend, the likelihood of a sharp expansion is low. Such an outcome could push the pair upwards, and a second resistance line might be broken as a result.
4. Below expectations: 42.0 to 44.9: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.
5. Well below expectations: Below 42.0: A very poor reading could impact on the Australian dollar and push the pair below a second support level.

For more on the Australian dollar, see the AUD/USDAUD/USD.

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