Are you ready for this? In a couple of hours the Chinese government will release its manufacturing PMI numbers! Wait a minute, what exactly will China's manufacturing PMI reveal?
The Chinese Federation of Logistics and Purchasing conducts one of the two major purchasing manager's index (PMI) reports, which is released on the first day of every month. The report is a leading indicator of China's economic health based on a survey on purchasing managers.
The Chinese manufacturing PMI reflects the views of these 800 purchasing managers on current and future economic conditions, including their expectations on a number of factors such as employment, prices, production, etc.
This time around analysts are expecting a 50.8 reading, which is lower than last month's 50.9 figure. Keep in mind though, that the report hasn't printed above expectations since the start of the year. In fact, it has been on an almost steady decline since peaking in 2010.
It also doesn't help that other major economic reports, such as GDP, capital spending, industrial production, and trade balance have printed in the red for the past couple of weeks. Does this mean that we're in for another disappointing Chinese report?
Below is a chart of AUD/USD. Remember that China is Australia's largest trading partner, so the Aussie is highly affected by Chinese data. Whenever we see good data from China, it normally means good news for Australia, which in turn is bullish for the Australian dollar. On the other hand, whenever Chinese data prints to the downside, it could mean less demand from China, which hurts Australia's economy, and in turn, we could see a sell-off.
Here are some levels to keep an eye on if you plan to trade AUD/USD for the rest of the week.
Here are two potential strategies you can consider using when the Chinese PMI report is released tomorrow:
Trade-the-news: You can take a non-directional bias and just set orders above / below price a few minutes before the release of the report. Just be sure to not be too greedy and aim for a reasonable amount of pips.
Alternatively, you can take just stick to one side and take a directional bias. Knowing that Chinese data has been somewhat disappointing lately, you could take a bearish directional bias and hope that it disappoints and that we see a sell-off.
Use the report for volatility and fade the move: You can just wait for all the noise to die down after the release and simply wait to see if price tests former resistance around 1.0580 or support at 1.0160 later in the week.
If you see reversal candlesticks at those levels, it could be time to jump in and fade the move! Take note that these levels are quite far, so you may have to be extra patient in waiting for price to test them.
Whether you decide to trade-the-news or play the fade, always remember to practice good risk management techniques! If you're uncomfortable trading these types of strategies, there's no shame in sitting back and watching from the sidelines!