Forex Signal (Thu May 5 2011, 4:30am NY Time EST) - UK Services PMI

Henry Liu

Former FPA Special Consultant
We’ll be trading the UK Services Purchasing Manager Index today at 4:30am (NY Time). This is a leading indicator similar to the Manufacturing PMI that was released early this week, here’s the forecast:

4:30am (NY Time) UK Services PMI Forecast 55.8 Previous 57.1

The Services PMI is tradable with a minimum deviation of 2.5 between the forecast and the actual release. If we get at least 58.3 or better, we could see some demand in the GBP and we will consider BUYING GBP/USD or GBP/JPY pairs. If we get a 53.3 or lower, GBP could weaken and we should look to SELL GBP/USD or GBP/JPY pairs. If the actual release is below the medium 50 level, then we should jump in (spike trade) and SELL GBP/USD or GBP/JPY pairs.

Important Note: The only time I’d recommend a spike trade is when there are so much momentum pushing this currency that regardless of spread and slippage, you should end up in profit if you just hold on to the trade.

I’ll be trading this release using after news retracement trading method. For more information on my trading methods, please read:
Henry Liu's Trading Method

The Market
Thursday’s release of UK Services PMI will serve as a strong indicator of the country’s economic position and future plans concerning rate hikes. On Wednesday May 4, the Sterling fell to its lowest level against the Euro in over a year. This, along with weak manufacturing reports that the UK is still struggling to overcome inflationary pressures.

Due to the MPC Meeting Minutes from Bank of England with 3 votes for rate hike, traders are now more convinced that BOE’s next move is going to be tightening, therefore any positive news is likely to spark another Sterling rally.

However, if this release still comes at below 50, we could see some much needed consolidation for the currency, and perhaps provide a much better entry point to go LONG on a long-term timeframe towards the end of the day.

Additional Thoughts
UK’s economy is 73% Services related, if we get a strong release on this PMI, we could see GBP sentiment turn bullish. Even though this PMI release does not change the long-term trend, but as leading indicator and being released during the early part of the month usually helps to define the trend for the rest of the month.

Pre-News Consideration
There is no pre-news consideration for this release…

“The Chartered Institute of Purchasing and Supply (CIPS) Services Purchasing Manager’s Index (PMI) measures the activity level of purchasing managers in the services sector, with a reading above 50 indicating expansion. A rising trend has a positive effect on the nation’s currency. To produce the index, purchasing managers are surveyed on a number of subjects including employment, production, new orders, supplier deliveries, and inventories. Traders watch these surveys closely because purchasing managers, by virtue of their jobs, have early access to data about their company’s performance, which can be a leading indicator of overall economic performance.”

Historical Chart and Data for UK Services PMI


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