GBP/USD: Trading the British Construction PMI

The British Construction PMI Index, published  in the first week  of each month,  is   based on a survey of purchasing managers in the construction industry. Respondents are surveyed for their view of business conditions and sentiment on the economy.

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

Published on Wednesday at 9:30 GMT.

Indicator Background

The index is  released during the first week of the month, providing analysts and traders with an early glimpse at the health of the construction index. A reading which is higher than the market forecast is bullish for the pound.

The index was above 50 for all of 2011, indicating growth in the construction sector. At the same time, the index has recorded lower readings for the past two months, with a December reading of 52.3. The January forecast is calling for a further drop,  down  to 51.9. Will the index rebound in its first reading of the new year and reverse the downward trend?

Sentiments and levels

Many of the UK’s economic in indicators continue to perform poorly. The Housing Price Index, released last week,  fell sharply into  negative territory in December, pointing to weak consumer demand and a lack of confidence in the economy. So, the overall sentiment is  bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.59, 1.5815, 1.57, 1.5580, 1.5415, 1.5340  and 1.5270.

5 Scenarios

1. Within expectations: 50.8 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 54.0: An unexpected higher reading can send the pair well above one resistance line.
3. Well above expectations: Above 54.0: Given the recent downward trend of the index, 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:  49.7 to 50.7: A sharper decrease than forecast could push GBP/USD downwards and lose one level of support.
5. Well below expectations: Under 49.7: An index reading  below the  critical 50 level  would push the pair downwards, possibly breaking a second support level.

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