GBP/USD: Trading the British Manufacturing PMI Jan 2012

The British Manufacturing PMI (Purchasing Managers’ Index) is   based on a survey of purchasing managers in  the manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in the UK.  A reading which is higher than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Wednesday at 9:30 GMT.

Indicator Background

Market analysts are always interested in the views of purchase managers on the economy, as the latter are considered to be attuned to the latest economic and financial developments, and their expectations could be an indication of future economic trends.

The index has been slightly under the 50 level since November, indicating no real growth in the manufacturing sector. The previous reading came in at 49.6, higher than the market prediction of 47.4. The market forecast for January is up to 50.2. Will the index climb into positive territory this month?

Sentiments and levels

GBP/USD had another  banner week,  as the pound has had a spectacular January.  However, economic fundamentals clearly favor the US over the UK. Traders may feel  confident jumping on the  pound bandwagon, but a correction to the surging pound  may not be far off. Thus, the overall sentiment is  neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.6065, 1.60, 1.59, 1.5775, 1.57, 1.55 and 1.5469.

5 Scenarios

1. Within expectations: 47.0 to 53.0: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 53.1 to 56.1: An unexpected higher reading can send the pair well above one resistance line.
3. Well above expectations: Above 56.1: Given the  ongoing weakness in  the manufacturing sector, the chances of a sharp expansion are low. Such an outcome would prop up the GBP, and a second resistance line might be broken as a result.
4. Below expectations:  43.9 to 46.9: A sharper decrease than forecast could  push GBP/USD downwards  and break  one level of support.
5. Well below expectations: Below 43.9: A  reading deep in negative territory  would indicate further contraction in the manufacturing sector. This would likely push the  pair downwards, possibly breaking a second support level.

For more about the pound, see the GBP/USD forecast.