In terms of USD/CNH we have seen a correction but expect this to end with a big move to the upside as the Chinese economy continues to slow and the Peoples Bank of China allow the USD to rise on the Yuan.

“China's manufacturing activity fell for a fourth straight month in July while the services and construction sectors teetered on the brink of contraction, official surveys showed on Monday, threatening growth prospects for the third quarter.” (REUTERS)

The official manufacturing purchasing managers' index (PMI) moved up slightly to 49.3 in July from 49.0 in June, staying below the 50-point which marks the difference between expansion from contraction.

The non-manufacturing PMI, which incorporates sub-indexes for service sector activity and construction, fell to 51.5 from 53.2 for the previous month. The sub-index for construction, a large employer amid a broader unemployment barometer moved down from a high of 65.6 in March to 51.2 this month.

The market is looking for policy support in terms of monetary stimulus to stop China's economy from falling into recession, as exports remain weak in the face of a global economic slowup.

"Unless concrete support is rolled out soon, the recent downturn in demand risks becoming self-reinforcing."(Julian Evans-Pritchard Capital Economics.) Some charts below on the slow up in manufacturing...

Manufacturing Data

The manufacturing sector will continue to move lower and confidence in the sector has also fallen hard.

Deflation Coming and No Big Stimulus Coming

Inflation has collapsed and deflation and recession is looming - There is no way of stopping the decline in the short term big stimulus is not an option given the high levels of debt. The China slow-up is bad news for commodities, commodity currencies, and risk sentiment.

Exports Import Data 

Both are falling and China will probably let the yuan fall to try and boost exports - the move will fail but it's one of the only options open to the authorities - we expect the correction to end and a major move up in USD/CNH to unfold.

Technical Analysis 

Our view of levels of support and resistance to look out for in terms of USD/CNY are outlined below.