Tuesday, December 18, 2018
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UK services PMI to get eclipsed by Brexit again as Parliament begins debate

UK Parliament | EconAlerts


After both the manufacturing and construction PMI beat expectations in November, the services PMI, due out of the UK on Wednesday at 09:30 GMT, will be eyed to complete the hat-trick. However, even if the more dominant services PMI does not disappoint and points to stronger economic activity in November, traders are unlikely to cut their bearish bets on sterling as the Brexit drama shows no sign of ending anytime soon.

Brexit uncertainty and political turmoil in the UK dragged the services PMI to a 7-month low in October, while the manufacturing PMI plunged to the lowest since July 2016 –  soon after the referendum on EU membership. The mood among British businesses has been getting gloomier for most of 2018, as, even with the Brexit endgame nearing, investors are still none the wiser about the UK’s future relationship with the European Union.

November’s rebound in the manufacturing PMI, while welcomed, wasn’t very encouraging when digging deeper into the details of the data. New export orders fell for the second straight month, while part of the increase in output was down to stock building as businesses took contingency measures for a possible no-deal Brexit scenario where customs checks would have to be imposed for trade with the EU.

UK PMIs | EconAlerts


Investors are therefore not holding their breath in seeing much positives in Wednesday’s services PMI as any rebound is likely to be seen as temporary. The services PMI from IHS Markit/CIPS is expected to pick up from 52.2 to 52.5 in November. Services firms have been growing more pessimistic about the outlook as aside from the Brexit uncertainty, the slowing growth in other parts of the world has also been weighing on business confidence. In addition, UK consumers have been spending less since the summer, further dampening the outlook.

GBP/USD could enjoy a modest boost from a stronger-than-expected services PMI, which could help the pair break above immediate resistance around 1.28 – the 78.6% Fibonacci retracement of the up-leg from 1.2694 to 1.3174. Clearing this hurdle could lift the pair towards the 61.8% Fibonacci at 1.2877, where the 200-period moving average is currently converging. However, GBP/USD would need to stretch its gains further to at least the 50% Fibonacci at 1.2934, to see a more notable change in sentiment from bearish to bullish.

GBP/USD 04/12/18 | EconAlerts

But a big shift away from the negative sentiment engulfing the pound at present isn’t very likely in the near term as investors will be locking their attention on the discussion in Britain’s parliament on Theresa May’s Brexit deal that she negotiated with the EU. MPs will have five days to debate May’s deal and can make up to six amendments before the vote on December 11. If Mrs. May fails to convince lawmakers to back her deal, the pound could be set for fresh falls as this would complicate the Brexit process and prolong the uncertainty.

In the meantime, a miss in the services PMI would only add to the downside pressure on sterling. GBP/USD could slip below key support around the 1.27 level, which has been tested several times over the past two months. Below this point, the next key support is likely to come from the 123.6% Fibonacci extension at 1.2581.


 

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Disclaimer:
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.


Source: XM

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