USD / TWD – Expansion in Manufacturing Sector as Taiwan PMI continue rise

The latest Purchasing Managers Index (PMI) compiled by Chung-Hua Institution for Economic Research (CIER) shows gain in manufacturing activity in Taiwan. Current PMI index stands at 57.7, much higher than the 51.3 figure from December. According to CIER President Wu Chung-Shu, they expected a continuing uptrend for Taiwan’s manufacturing sector, but certainly not “such a big increase”. This increase is even more encouraging considering the 5 consecutive shrinkage between July to November back in 2011, before last month’s turnaround. Also, the latest print is the first time the survey prints positive gains in all 6 sub-categories that make up the entire index since its inception.

Wu attributed the sharp rise to confidence in the global economy and seasonal orders ahead of the Chinese Lunar New Year. However, this theory has a China sized hole as Chinese PMI was much more subdued, barely crossing parity mark at 50.4 amidst forecasts for 51.1, which is fairly close to Taiwan’s previous level. It is unlikely that rising Taiwan’s domestic consumption is the main driver for the rally in PMI, hence a deeper investigation is certainly needed to establish that current growth rate in Taiwanese manufacturing sector is sustainable.

Weekly Chart

Price failed to break 29.8 support turned resistance, with wick of last week’s candle high at 29.784. Current bias is on the down side, with consolidation zone between 29.4 – 29.6 preventing any sharp decline back towards 29.0. Improving economic data from Taiwan will continue to strengthen TWD against the Greenback, a scenario which Stochastic indicator agree with readings now in the Overbought region.

Fundamentally, the move from 29.0 is driven by weaker economic data – which saw GDP hitting 3-year low. If the PMI is a sign of things to come, we can see confidence in Taiwan economy building up resulting in a stronger TWD.

Hourly Chart

Hourly chart is less bearish, with prices showing higher highs and higher lows for the past 3 trading days. Today’s low has also failed to test last Friday’s low, with Stochastic reading showing that a bottom might be in place. If Stochastic reading is correct, a rally from here will re-affirm the recovery from 29.5, looking to test 29.8 once again.

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