GBP/USD Trading the British Services PMI May 2014

The British  Services PMI (Purchasing Managers’ Index) is  based on a survey of purchasing managers in  the  services 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 Tuesday at 8:30 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 continues to post figures in the high-50 range, pointing to continuing expansion in the services sector. The March reading came in at 57.6 points, falling short of the estimate of 58.2 points. The estimate for the upcoming release stands at 57.9 points.

Sentiments and levels

Fundamental releases out of both the US and UK were solid last week, in particular employment numbers. Market sentiment remains strong with regard to both economies, and if the positive momentum continues, speculation will grow as to when the Federal Reserve  and the Bank of England might raise  interest rates.  Will the pound make a move  towards the key 1.70 level or will we see a  long overdue correction  in favor of  the dollar? So, the overall sentiment is  neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.7375, 1.7180, 1.6990, 1.6823, 1.6705 and 1.66.

5 Scenarios

1. Within expectations: 55.0 to 61.0: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 61.1 to 64.0: An unexpected higher reading can send the pair above one resistance line.
3. Well above expectations: Above 64.0: Such an outcome would likely prop up the GBP, and a second resistance line might be broken as a result.
4. Below expectations:  52.0 to 54.9: A sharper decrease than forecast could  push GBP/USD downwards  and break  one level of support.
5. Well below expectations: Below 51.9: A  poor reading would point to slower expansion or even contraction in the services sector. This would likely push the  pair downwards, possibly breaking a second support level.

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

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