GBP/USD: Trading the UK Construction PMI February 2 2015

The British Construction PMI Index is based on a survey of Purchasing Managers in the construction industry. The survey includes about 170 respondents, who are surveyed for their view of a wide range of business conditions, including employment, new orders, prices and inventories. A reading which is higher than the market forecast is bullish for the pound.

Update:  UK construction PMI jumps to 59.1 points – GBP/USD ticks up

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

Published on Tuesday 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 UK Construction PMI has been  losing  ground since September.  The  December reading  came in at 57.6 points, shy of the estimate of 59.2 points. The  downward trend is expected to continue, with an estimate of 56.9 points.

Sentiments and levels

The Federal Reserve  signaled  that an interest  rate remains  on track for later in the year, but Advance GDP for Q4 disappointed.  With inflation levels falling in the UK, the BOE is under less pressure to raise rates and the  divergence favors the US dollar.  So, the overall sentiment  is neutral  on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5416, 1.5290, 1.5114, 1.5008, 1.4813 and 1.4752.

5 Scenarios

1. Within expectations: 54.0 to 60.0: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 60.1 to 64.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 64.0. Given the index’s downward trend, the likelihood of a sharp expansion is low. Such an outcome could prop up the pound and a second resistance line might be broken as a result.
4. Below expectations: 50.0 to 53.9: A sharper decrease than forecast could push the pair below one support level.
5. Well below expectations: Below 50.0: A reading below the 50 point level would indicate contraction in the construction sector. This could push downwards on the pound, and GBP/USD could break a second support level.

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

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