Since the China Services and Manufacturing PMIs bottomed out a few months ago, stock markets have rallied, as traders expected better China economic growth at the start of 2019. However, the latest slide in industrial production and retail sales, remind us that the PMI survey does not always paint the actual state of an economy. The sharp decline in industrial production almost nullifies the sharp 8.5% annual growth seen March. The high correlation between industrial production and China GDP suggest that the Chinese economy remains soft.
The Australian dollar traders took the news badly and sent the AUDUSD to a new monthly low. As we shared in the last few weeks and in the ATFX quarterly outlook, a slide below the May 6 low of 0.6965 would complete the multi-month bearish descending triangle formed over October to May, and trigger a slide to the pattern target of 0.6617.
Our bearish view is reinforced today, and we suspect that traders will use a potential corrective move to the vicinity of the May 9 low at 0.6960 as an opportunity to add to their bearish exposure. We will remain bearish as long as the price trades below the May 13 high of 0.7037 and anticipate that trade wars and problems in the Chinese and Australian economy will continue to weigh heavy on the Australian dollar. However, if China and the U.S. indeed agree to a deal that would improve the state of the world economy, I think it would be fair to anticipate stabilization in the Aussie dollar.
For more on how I would manage a trade in the AUDUSD, check out the video below.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs / Spread betting with ATFX.
You should consider whether you understand how CFDs / Spread betting work and whether you can afford to take the high risk of losing your money.
This market update was provided with an educational purpose, and is the personal opinion of Alejandro Zambrano, and not to viewed as trading advice by ATFX or Red Castle Ideas LTD.