GBP/USD: Trading the British Manufacturing Nov 2012

British Manufacturing Production, a key economic 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  has proven to be quite inconsistent in 2012, and recorded its  worst reading of the year in October, with a drop of    1.1%.  However, the markets are forecasting a slight gain this month, with an estimate of 0.3% . Will the indicator move into positive territory this time around?

Sentiments and levels

UK releases were mixed last week, and the markets are not expecting any dramatic improvements from the UK economy. On Thursday, the BOE announces its decisions  on QE and  the key interest rate, but both are expected to remain the same. The big question mark remains the US presidential election on Tuesday. The race is extremely tight, although President Obama appears to have a slight edge. The outcome of the  election could have a significant impact on the currency markets, making for a very interesting week. Thus, the overall sentiment is  neutral on GBP/USD towards this release.

Technical levels, from top to bottom: 1.6247, 1.6122, 1.6060, 1.5992, 1.5930 and 1.5805.

5 Scenarios

1. Within expectations: 0.0% to 0.6%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
2. Above expectations: 0.7% to 1.0%: A strong reading can send the pair well above one resistance line.
3. Well above expectations: Above 1.0%: The likelihood of a sharp expansion in the manufacturing sector is low. Such an outcome would prop up the GBP, and a second resistance line might be broken as a result.
4. Below expectations: -0.4% to -0.1%: A reading in negative territory could  push GBP/USD downwards, and  the pair could  break  one level of support.
5. Well below expectations: Below -0.4%: A very poor reading would highlight contraction in the manufacturing sector, and   the pair could breaking a second support level.

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