GBP/USD: Trading the British Services PMI Feb 2014

The  British  Services PMI is based on a survey of purchasing managers in the  services sector. Respondents are surveyed for their view of the economic 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  9:30 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.

British  Services PMI  was a major disappointment in  January,  dropping below the 50 point line for the first time in 2012.  A reading below 50 indicates contraction. The February forecast calls for a slight improvement, to 49.8 points. Will the index beat the estimate and push back above the 50 level?

Sentiments and levels

Nothing seems to have gone right for the pound in January, which shed about five cents against the US dollar during that time. The downward spiral could continue if UK numbers continue to point to a sluggish British economy. The US recovery may be bumpy, but is certainly much stronger than what we’re seeing out of the UK. Thus, the overall sentiment is  bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.5930, 1.5850, 1.5750, 1.5648,  1.5516 and 1.5406.

5 Scenarios

1. Within expectations:  47.0 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 56.0: An unexpected higher reading can send the pair above one         resistance line.
3. Well above  expectations: Above 56.0: The likelihood of a sharp expansion is low. Such an outcome would push the pair upwards, and a second resistance  line might be broken as a result.
4. Below expectations:  44.0 to 46.9: A sharper decrease than forecast could push GBP/USD  downwards and break one level of support.
5. Well below expectations: Below 44.0: This scenario would indicate  substantial contraction in the  services sector. This would likely  push the pair down, possibly breaking a second support level.

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