The somewhat surprising jump in Chinese factory activity underpinned accelerating global economic recovery, which would likely alleviate some of the adverse volatility that continues to plague markets. To learn more about the current investors' outlook, have a look at our comprehensive analysis of gold.
Earlier today, Markit published the latest Chinese factory activity numbers. The Caixin manufacturing index surprisingly rose to a four-month high in October, which underpinned a significant rebound in Chinese industrial output. This bolstered the selling pressure on the USDCNY in the short term.
The price action of the USDCNY pair has been developing a sizable downtrend over the past several weeks, as shown on the daily chart above. The downtrend itself appears to be taking the form of a 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.
Despite the ostensibly bearish outlook, a minor pullback to the 61.8 per cent Fibonacci retracement level at 6.4156 appears to be unravelling. The histogram of the MACD indicator underpins the declining bearish momentum over the last several days.
This pullback is likely to serve as the second retracement leg (3-4) of the Elliott pattern before the broader downtrend can be extended lower. Thus, a potential reversal from the 61.8 per cent Fibonacci would likely be followed by the third impulse leg (4-5) towards the previous swing low at 6.3570.
Factory activity in the world's fastest-growing economy reached 50.6 index points in October, above market forecasts of 50.2. The surprising uptick in manufacturing activity also surpassed the 50.0 index points that were recorded a month prior.
The upward revision comes at a time when the rate of Chinese economic expansion was showing signs of slowing down. Recouping factory activity could therefore elucidate the resilience of the economy to the current hurdles to global demand.