2019 kicks off with fresh Chinese growth concerns

The markets are now underway for the New Year and the immediate first news of note is from China on Monday and again this morning with both December gauges of manufacturing output there slipping into contraction. That is defined by the PMI index dropping below 50 whereas anything above 50 is assessed as denoting expansion.

Well, both the main Chinese index and the ‘Caixin’ index have dropped below 50 on Monday and again this morning, coming in at 49.4 and 49.7 respectively.

This news is surely a major concern for the global markets as 2019 gets underway. China in reality is probably a more important barometer of world growth prospects than the US these days and this news has sent Asian and European equity markets sharply lower as the first trading day of the New Year gets underway.

The other impact of this has sent the oil price lower again as WTI falls beck below $45 a barrel this morning. It has also dented the Australian dollar and the Canadian dollar too as of course the commodity currencies are highly sensitive to how the Chinese economy fares.

So, given this latest news I felt it important to send an update on all this today rather than wait until my next scheduled article which would normally be due on Friday. In addition to that, I also want to share with you two important long term charts that are highly pertinent to what I have just said about the AUD and the CAD.

Both are weekly bar charts taken over a 10year period and illustrate a potentially similar ‘Head and shoulders’ chart pattern. Indeed, similar to the one still live on the GBPUSD that I have showed you previously, although over a shorter time frame.

The first is on the AUDJPY onto which I have drawn in text where the ‘head’, ‘right shoulder’ and ‘left shoulder are situated along with where I think the possible neckline is, as denoted by the parallel red line that I have added.

The second is on the CADJPY which as you can see is remarkably similar in its formation to that of the AUDJPY.

So, the aim of this is for me to highlight the potential here for the price of both pairings, to not only fall further to meet those red ‘necklines’, but also, and in both cases, there is potentialfor significant further downside beyond that point too.

Indeed, as I write the JPY is the main beneficiary for this fresh ‘risk off’ sentiment as European equity markets open with significant losses too this morning. That very much underscores the concern I mentioned only last Monday about not wishing yet to reinvest in the equity space.