GBP/USD:Trading the British Services PMI



The British Services PMI (purchasing managers’ index) is an important leading indicator which focuses on the services sector of the economy. The PMI comes out at the beginning of each month, providing analysts with an early snapshot of the UK Services sector. A reading that is higher than the forecast is bullish for the pound.

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

Published on Tuesday at 09:30 GMT.

Indicator Background

The PMI is based on a comprehensive survey of purchasing managers in the service sector, who are interviewed about their activity level and current expectations as to how the economy will perform. A reading above the 50-point level indicates that the service sector is growing, while a figure below 50 signifies contraction.

Services PMI has been above the 50-point level for over a year, with the exception of the January 2013 release. This indicates that the UK service industry has been marked by modest expansion. The previous reading came in at 51.5 points, and the March estimate stands at the same figure.

Sentiment and technical levels

The pound has a miserable 2013, and there isn’t much good news on the horizon. The UK economy is sputtering, and the US continues to produce mixed results, as the road to recovery remains a bumpy one. The pound dipped into 1.49 territory level late last week, as the all-important 1.50 level is under pressure from the pair. Thus the overall sentiment is bearish on GBP/USD prior to this release.

Technical levels, from top to bottom: 1.5282, 1.5189, 15061, 1.5010, 1.4896 and 1.4765.

5 Scenarios

  1. Within expectations: 48.0 to 55.0: In this case, GBP/USD may fluctuate slightly within range, with a small chance of breaking higher.
  2. Above expectations: 55.1 to 58.0: An unexpected higher reading can send the pair above one resistance line.
  3. Well above expectations: Above 58.0 points: The chances of such an outcome are low. Such a scenario would push GBP/USD upwards, and a second resistance level might be broken as a result.
  4. Below expectations: 45.0 to 47.9: A weak reading would create pressure on the pound and one support level could be broken.
  5. Well below expectations: Below 45.0 points: A sharp contraction in the reading could cause GBP/USD to drop below two or more support lines.

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

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About

Kenny Fisher - Senior Writer

A native of Toronto, Canada, Kenneth worked for seven years in the marketing and trading departments at Bendix, a foreign exchange company in Toronto. Kenneth is also a lawyer, and has extensive experience as an editor and writer.

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