GBP/USD: Trading The UK Manufacturing Production

UK Manufacturing Production, a key indicator, provides analysts and traders with a snapshot of the strength of the UK manufacturing sector. A reading which is higher than the market forecast is bullish for the pound.

Here are all the details, and 5 possible outcomes for GBP/USD.

Published on Wednesday at 9:30 GMT.

Indicator Background

The British Manufacturing Production indicator measures the changes in output produced by manufacturers and in the turning of inventory. Manufacturing is a critical sector of the economy, and strong readings are an indication of economic growth.

The indicator has been struggling, posting three consecutive declines, all of which missed expectations. The markets are expecting an improvement in the January report, with an estimate of 0.2%.

Sentiments and levels

The Federal Reserve is unlikely to raise rates in March, but the bias remains towards tightening. This monetary divergence favors the US dollar. Although the US economy has experienced a soft start to 2016, the employment picture is solid, and the most recent Nonfarm Payrolls report was well above expectations. So, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.4562, 1.4346, 1.4227, 1.4148, 1.40 and 1.3901.

5 Scenarios

Within expectations: -0.1% to +0.2%: In such a case, GBP/USD is likely to rise within range, with a small chance of breaking higher.

Above expectations: 0.3% to 0.7%: A strong reading could send the pair above one resistance line.

Well above expectations: Above 0.7%: The likelihood of a strong expansion in the manufacturing sector is low. Such an outcome could prop up the pound, and a second resistance line might be broken as a result.

Below expectations: -0.5% to -0.2%: In such a scenario, GBP/USD could lose one level of support.

Well below expectations: Below -0.5%: A sharp contraction would likely push the pair downwards, possibly breaking a second support level.