FxWirePro: What Does Caixin PMI Indicate? USD/CNH Options Strategies

The key topic was still Chinese PMIs. Normally the market impact of economic data is short-lived, but obviously, the Chinese PMIs have a much longer and bigger market influence. While the PMI could be impacted by a lot of unknown factors, it still looks like there have emerged some green shoots in China’s economy. 

The Caixin manufacturing PMI soared to 50.8 in March 2019 from 49.9 in the previous month, beating market expectations of 50.1. The latest reading pointed to the first increase in manufacturing activity in four months and the strongest since July 2018, as new order growth accelerated to a four-month high, boosted by a rebound in new export orders, and employment increased for the first time since October 2013, with some firms mentioning they were hiring additional workers to support greater production and new business developments.

We reckon that it is better not to take a one-sided opinion. The risk-reward is usually not good if you follow the consensus. The strong Chinese PMIs somehow suggest that the activity data for March would very likely bring in upside surprise, which is almost fully priced in by the market rallies. But what the market might have not been prepared is that the Chinese central bank could hold on the easing tap at some point as the inflation data could also surprise on the upside. Again, it is always important to have a balanced view of China. 

OTC FX updates: 

You could easily make out that the positively skewed 3m IVs of USDCNH have been stretched out on either side but little bullish bias (refer above nutshell). This is interpreted as the hedgers' bid for both deep OTM calls and OTM put options.

Trade tips: Buy 3M 40D (6.76 strikes) USD calls/CNH puts vs sell 3M 5.50. Courtesy: Sentrix, Tradingeconomics & Commerzbank

Currency Strength Index: FxWirePro's hourly USD spot index is inching towards 81 levels (which is bullish), and hourly CNY spot index has been bearish, creeping at -42 (bearish) while articulating (at 14:01 GMT). 

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex