AUD / USD – HSBC Manufacturing Data unable to stop decline

Chinese HSBC Manufacturing PMI was better than expected, with latest reading at 51.9, higher than estimated of 51.7 and 51.5 previous.

Hourly Chart

Price “popped” higher, trading back on top of 1.053 support turned resistance, but ultimately failed to breach 1.055 resistance. Prices headed lower sharply, moving back below 1.053 in one swoop and is currently attempting to breach the 1.05 – 1.052 consolidation range. This underlines the overall bearishness of AUD/USD, though the reason for such sentiments isn’t clear. Some may attribute it to simply general pessimism regarding Australia’s long-term economic future, which was underpinned by last week’s weaker than expected employment data. Should such opinions be true, we should have seen a much greater reaction from this better result from China. OIS is pricing in about 35% chance of RBA rate cut in Feb, which hasn’t deviated significantly from early Jan. Yesterday’s higher than expected CPI data also affirms this belief, with RBA’s maneuverability getting narrower.

Daily Chart

Stochastic on daily chart showing that a down cycle is currently underway. Also, price is trading below 76.4% Fib ( 1st Mar ’12 high vs 1st Jun ’12 low), heading towards the next 61.8% retracement level above 1.035. From a pure trend perspective, bulls should be concern that price appears to have broken the Higher Highs and High Low streak, if we interpret yesterday’s candle as the recent swing high. However current price action can also be interpreted as an extension of decline from 11th Jan highs, meaning that overall direction is still bullish. Yet even with such an interpretation, current extension does not seem to have stopped, with 1.05 possibly providing support. Further push lower towards and beyond 1.045 will likely accelerate bearish momentum and confirm bearish sentiment on the daily chart.

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