GBPUSD reactions to UK services PMI releases
City Index March 4, 2015 12:04 AM
<p>Wednesday’s release of the UK February services PMI is expected to show a rise to 57.5 from 57.2 with sterling bulls hoping for the 2nd […]</p>
Wednesday’s release of the UK February services PMI is expected to show a rise to 57.5 from 57.2 with sterling bulls hoping for the 2nd monthly increase to join the recent upside surprises in UK economic data. Today, UK’ construction PMI rose to 60.1 in February, hitting a 4-month high on the back of Monday’s 7-month highs in the manufacturing PMI. The report is in line with expectations that the UK economy is gradually rebounding from all three cylinders (services, construction and manufacturing). So how is GBPUSD expected to react on Wednesday’s figures?
The chart below illustrate the 6-hour reaction in GBPUSD to each of the last 13 releases in UK services PMI.
The highlights of the past reactions are the following:
The Feb 4th 2015 release of the January services PMI showing a +1.62 surprise above expectations (Bloomberg consensus) to 57.2 triggered the biggest GBPUSD rally over the ensuing six hours from the time of release out of all 13 observations. GBPUSD ended up +0.48% or about 70 pips.
The release of Nov 5h (+3.5 pts), June 4th (+0.72 pts) to 58.6, May 6h (+2.0 pts) and Mar 5h (+0.30 pts) have also lifted GBPUSD by at least 0.20% in the ensuing 6 hours from the release.
The Oct 3rd 2014 release, showing a -0.37 surprise to 58.7 led to a 0.84% decline in GBPUSD, reflecting a miss on the release as well as a decline from the prior month. Aside from the surprise and trend factors, GBPUSD was in the midst of broadening selloff, partly reflecting the fast declining inflation figures and USD’s yield superiority via the prevailing data.
Sterling sentiment is also important in determining reactions as the Sep 3rd 2014 large upside surprise of +3.72 to a 9-month high of 60.5, failed to help GBPUSD, ultimately leading to a decline in of 0.13%. The release was impacted by deteriorating sentiment in the currency surrounding heightened uncertainty ahead of the Scottish referendum.
The aforementioned reactions highlight that GBPUSD’s reaction to the UK Chicago services PMI release are largely dependent on prevailing sentiment in sterling, the extent of the surprise relative to expectations and trend in the PMI. Current sentiment in sterling has lacked the last week’s bullishness but remains above GBPUSD’s important 55-day moving average. Consensus expects a modest rise to 57.5 from 57.2, but it would take an outcome of at least 58.0 to lift the pair above $1.5400. We expect the pair to continue hovering between the 55 and 100 DMAs until the Friday release of the February US jobs report. Naturally, the 6-hour span will be influenced by the US ADP and services ISM figures.
StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.