GBP/USD: Trading the UK Services PMI

5 July 2016, 17:40
Sherif Hasan

UK Services PMI is based on a survey of purchasing managers in the services sector. Respondents are surveyed for their view of the economy 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 8:30 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.

Services PMI remains above the 50-point line, pointing to expansion in the services sector. The index improved in May to 53.5 points, above the estimate of 52.5 points. Little change is expected in the June report, with an estimate of 53.1 points.

Sentiments and levels

In the US, monetary policy is not expected to be hawkish and a rate hike appears doubtful. With the British political scene in disarray and the financial markets struggling to come to grips with Brexit, stormy waters could continue to engulf the pound. So, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.3514, 1.3426, 1.3276, 1.3145 and 1.3064

5 Scenarios

  1. Within expectations: 50.0 to 56.0: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 56.1 to 60.0: An unexpected higher reading can send the pair above one resistance line.
  3. Well above expectations: Above 60.1: Such an outcome would likely prop up the pound, and a second resistance line might be broken as a result.
  4. Below expectations: 45.0 to 49.9: A reading showing contraction could push GBP/USD downwards and break one level of support.
  5. Well below expectations: Below 45.0: A reading pointing to significant contraction would push the pair below a second support level.
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