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Bullish GBPUSD Momentum to Falter on Slowing U.K. Services

Bullish GBPUSD Momentum to Falter on Slowing U.K. Services

2013-10-03 04:00:00
David Song, Strategist
Share:

- U.K. Purchasing Manager Index to Hold at 60.5- Highest Since 12/2006

- GBPUSD Eyes 1.6300 as Bullish Momentum Remains Intact

Trading the News: U.K. Purchasing Manager Index- Services

With the U.K. Services Purchasing Manager Index expected to hold at a 7-year high, a deviation from market expectations is likely to spur increased volatility in the British Pound as market participants weigh the outlook for monetary policy.

What’s Expected:

Time of release: 08/15/20138:30 GMT, 4:30 EDT

Primary Pair Impact: GBPUSD

Expected: 60.5

Previous: 60.5

DailyFX Forecast: 59.0 to 61.0

Why Is This Event Important:

Indeed, a positive development may spur increased bets of seeing the Bank of England (BoE) carry out its exit strategy ahead of schedule as the more robust recovery appears to be pushing the central bank away from its easing cycle.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Nationwide Home Price Index n.s.a. (YoY) (SEP)

0.5%

0.9%

Jobless Claims Change (AUG)

-21.0K

-32.6K

Mortgage Approvals (AUG)

61.5K

62.2K

Rising home prices along with the pickup in private sector credit may encourage another better-than-expected print, and the British Pound may continue outperform against its major counterparts as U.K. policy makers turn increasingly upbeat towards the real economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Retail Sales inc. Auto (MoM) (AUG)

0.4%

-0.9%

Total Business Investments (QoQ) (2Q F)

0.9%

-2.7%

Trade Balance (JUL)

-1.700B

-3.085B

Nevertheless, the near-term rally in the GBPUSD may come to a halt should the data dampen the outlook for stronger growth, and we may see Governor Mark Carney continue to rely on the non-standard measures to further insulate the economy.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Services PMI Tops Forecast

  • Need green, five-minute candle following the print to consider a long British Pound trade
  • If market reaction favors a long trade, buy GBPUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish GBP Trade: Data Dampens Outlook for Stronger U.K. Recovery

  • Need red, five-minute candle to favor a short GBPUSD trade
  • Implement same setup as the bullish British Pound trade, just in opposite direction

Potential Price Targets For The Release

GBPUSD Daily

Bullish_GBPUSD_Momentum_to_Falter_on_Slowing_U.K._Services_body_Picture_2.png, Bullish GBPUSD Momentum to Falter on Slowing U.K. Services

Chart - Created Using FXCM Marketscope 2.0

  • Upward Trending Channel Remains Intact; Breaking Out of Multi-Year Wedge/Triangle?
  • Relative Strength Index Maintains Bullish Momentum
  • Interim Resistance: 1.6300 Pivot (2012 highs)
  • Interim Support: 1.6000 Pivot

Impact that the U.K. Retail Sales report has had on GBP during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

AUG 2013

09/04/2013 8:30 GMT

59.7

60.5

+25

+47

August2013 U.K. Purchasing Manager Index- Services

Bullish_GBPUSD_Momentum_to_Falter_on_Slowing_U.K._Services_body_ScreenShot180.png, Bullish GBPUSD Momentum to Falter on Slowing U.K. Services

The Purchasing Manager Index for service-based activity climbed to 60.5 from 60.2 in July - marking the highest reading since 2006 - and the more robust recovery may encourage the Bank of England to switch gears in the coming months as inflation continues to run above the 2% target. The British Pound extended the advance from earlier in the week, with the GBPUSD climbing above the 1.5600 handle, and the pair continued to track higher during the North American trade to close at 1.5623.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, please follow this link

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