Home GBP/USD: Trading the British Services PMI

GBP/USD: Trading the British Services PMI

The British Services PMI (purchasing managers’ index) is an important leading indicator which focuses on the services  industry. As the PMI comes out at the beginning of each month, analysts and traders look closely at the index for any hint of a market trend.

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

Published on Thursday at 09:30 GMT.

Indicator Background

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

The index made some gains in October to reach 52.9, exceeding the market forecast of 50.6. However, the November forecast calls for a drop to 51.9. Will the market again underestimate the index? A reading higher than the market prediction is bullish for the pound.

Sentiment and technical levels

With a November GDP reading slightly above market expectations, the pound seems to have dodged a bullet. However, unemployment and inflation figures remain worrying, and the debt crisis in Europe continues to rattle jittery investors. Thus the overall sentiment is bearish on GBP/USD prior to this release.

Technical levels, from top to bottom: 1.64, 1.62, 161.10, 1.60, 1.5910, 1.5850 and 1.5780.

5 Scenarios

  1. Within expectations: 51.2 to 52.7: In this case, GBP/USD may fluctuate slightly within range, with a small chance of breaking higher.
  2. Above expectations: 52.8 to 53.5: An unexpected higher reading can send the pair well above one resistance line.
  3. Well above expectations: Above 53.5 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: 50.4 to 51.1: A smaller than forecast gain would create pressure on the pound and one support level could be broken.
  5. Well below expectations: Below 50.4 points: A reading close to or below the critical 50 level cannot be ruled out in the current economic climate. In this case, GBP/USD could drop below two or more support lines.

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

Kenny Fisher

Kenny Fisher

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.