GBP/USD: Trading the British Manufacturing Jan 2016

British Manufacturing Production, a key indicator, provides analysts and traders with a snapshot of the health of the UK manufacturing sector. 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 9:30 GMT.

Indicator Background

The British Manufacturing Production indicator measures the changes in output produced by manufacturers and in the turning of inventory. Manufacturing is a critical sector of the economy, and strong readings are an indication of economic growth.

The indicator slipped in October,  coming in at  -0.4%, which was weaker than the forecast of -0.1%. The markets are expecting an improvement in November, with an estimate of 0.1%.

Sentiments and levels

The US dollar  has surged against the pound over the past two months, and this trend has continued early in the New Year. The Fed could raise rates again as early as March, while any BOE plans to raise rates are on hold, perhaps until 2017. This monetary divergence and a strong US economy favor the dollar continuing to make gains against the pound, which many analysts believe is overvalued. So, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.4856, 1.4752, 1.4562, 1.4340, 1.4227 and 1.4135.

5 Scenarios

1. Within expectations: -0.2% to +0.4%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.5% to 0.9%: A strong reading can send the pair above one resistance line.
3. Well above expectations: Above 0.9%: The likelihood of a sharp expansion in the manufacturing sector is low. Such an outcome could prop up the pound, and a second resistance line might be broken as a result.
4. Below expectations: -0.7% to -0.3%:  In such a scenario,  GBP/USD could lose one level of support.
5. Well below expectations: Below -0.7%: A  sharp contraction  would likely push  the pair downwards, possibly breaking a second support level.

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