Tuesday, August 2, 2011

UK Services PMI (Purchasing Manager Index) 3 August 2011

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 53.5 Previous 53.9


The Trade Plan

The Services PMI is trada ble with a minimum deviation of 2.5 between the forecast and the actual release. If we get at least 56.0 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 51.0 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 is momentum pushing the currency which, regardless of spread and slippage, could result in a profit if you hold on to the trade.

The Market

UK economy continued to deteriorate and the market is gearing up for further sell-offs of GBP on any negative data. With 2nd Quarter GDP just escaped a negative reading by the skin of its teeth, Manufacturing PMI falling below the 50 level, the Services PMI today will probably be a huge market mover if it surprises the market, in either direction.

Of course, I would expect more movement in the market if the release matches the current market sentiment, that is if we get a better number and the market is driven by risk appetite, then we will see stronger GBPUSD pair; on the other hand, if we get a negative number and the market happens to be driven by fear of sovereign default, then expect the move to be more profound.

Additional Thoughts

UK´s economy is 87% Services related. If we get a strong release on this PMI, we could see GBP sentiment turn bullish regardless of the fact that the PMI release doesnt change the long-term trend. As a leading indicator released early in the month, it helps to define the trend for the rest of the month.

Pre-News Consideration

There is no pre-news consideration for this release…

Definition :

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.

by Henry Liu