GBP/USD: Trading the British Manufacturing Aug 2012

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 8:30 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  in the UK economy, and strong readings are an  indication of economic growth.

The indicator rose a  healthy 1.2% in the  July release. However, the markets are bracing for a sharp reversal in August, with a forecast of -3.2%. Such a  sharp decline could hurt the pound.

Sentiments and levels

GBP/USD has exhibited quite a bit of volatility in July, and fell over two cents last week before recovering partially late in the week. The British economy is in deep trouble, and many investors will be drawn to the safety of the US dollar if the turmoil in Europe continues. Thus, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5805, 1.5750, 1.5648, 1.5600, 1.5521 and  1.5415.

5 Scenarios

1. Within expectations: -4.3% to -3.5%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: -3.4% to -3.0%: A stronger reading than forecast can send the pair well above one resistance line.
3. Well above expectations: Above -3.0%: Such an outcome could prop up the GBP, and a second resistance line might be broken as a result.
4. Below expectations: -4.4% to -4.8%:  In this scenario, GBP/USD could  lose one level of support.
5. Well below expectations: Below -4.8%: A very  sharp  drop by the indicator  could push the pair downwards, possibly breaking a second support level.

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