Forex Signal (Tue October 5, 2010 4:30am EDT NY Time) UK Services PMI m/m

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 at the end of last week, here’s the forecast:

4:30am (NY Time) UK Services PMI Forecast 51.1 Previous 51.3

The Services PMI is tradable with a minimum deviation of 2.5 between the forecast and the actual release. If we get at least 53.5 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 49.0 or worse release, GBP could weaken and we should look to SELL GBP/USD or GBP/JPY pairs. With the medium point for PMI at 50, anything below it would consider as contraction in the sector, therefore we could see some market volatility if we get 49 or less.

I'll be trading this release using after news retracement trading method. For more information on my methods:
Henry's news trading methods.

The Market
With BOE rendering its interest rate decision on Thursday and recent BOE official Posen's call for immediate stimulus injection, GBP has been under pressure and only maintained par against USD as we ended trading last week.

GBP is likely to remain under pressure until after the BOE decision on Thursday, however the broader market trend may end up being the primary driver for the currency if we do not get a strong release today.

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. With JPY coming to a strong support level (USDJPY 83.00) and BOJ threatening for further intervention, GBP/JPY may be the biggest winner if this release is surprisingly high.

GBP/USD is on the verge of collapsing to the 130s, and a better than expected Services PMI may turn the recent trend around.

Pre-News Consideration
There is no pre-news consideration for this release, and even if there is a possible trend developing, I'd warn against it since this week is packed with economic news releases...

“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 data and charts for UK Services PMI


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