Binary Options Analysis – Trade of the Week: GBP/USD 1st December 2014

United Kingdom – Manufacturing PMI

At GMT 9:30 a.m., the Markit released the United Kingdom’s manufacturing purchasing managers’ index (PMI) figure, which measures the level of a diffusion index by surveying around 600 purchasing managers in the country.

Since businesses are the first to react to changing economic climate and the PMI is calculated based on survey questions covering employment, production, price levels, new orders situation as well as inventory conditions; binary options traders and market analysts consider this data to be a leading indicator of the overall economic health of the country.

Last month, in November, the UK’s manufacturing PMI came out at 53.3 and the forecast for December was set at 53.1, slightly lower compared to last month. The actual figure, however, came out higher at 53.5.

United States – Institute for Supply Management (ISM) Manufacturing PMI

Later in the afternoon, at GMT 3:00 p.m., the Institute for Supply Management will be publishing its manufacturing PMI figure for the United States as well. Similar to the UK’s manufacturing PMI, the ISM’s US manufacturing PMI also measures the level of a diffusion index based on a survey of purchasing managers. However, ISM conducts its survey of only 400 participants.

Purchasing managers in the United States are involved in the supply side of the economy. As most companies reduce their expenses and production based on their sales forecast, the survey of purchasing managers reveals the overall optimism of various companies in the country. Hence, binary options traders can easily figure out the sentiment regarding the economic condition in the country from the ISM manufacturing PMI readings.

In November, the ISM manufacturing PMI for the United States came out at 59 and the forecast for December is set at 57.9. If the actual figure comes out anything short of 58, it will indicate that the US companies are re-evaluating the overall business climate in the country.

Trade Recommendation for the GBP/USD

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The GBP/USD has been on a steady down trend since July 15, 2014 and it has formed a strong downward sloping equidistant channel in the process. After the pair closed below the support around 1.6688 on August 14, the bearish momentum accelerated and the GBP/USD price quickly fell towards the support around 1.5875, which was then broken on November 6. Last week, the pair tested the upper trend line of the equidistant channel, but the price quickly bounced from 1.5825, which was the low of November 7 as well.

As the UK’s manufacturing PMI figure came out way better than expected, the GBP/USD is currently trading with a bullish momentum. Since the market opened this week, so far the pair has managed to gain around 117 points.

Given that the US manufacturing PMI came out very strong last month, it is likely that it will be corrected this time around. Also, the forecast is set at a lower target, 57.9. If the actual US manufacturing PMI comes below this forecast, the market will certainly try to test the equidistant channel and perhaps the resistance around 1.5875. If the price penetrates above this level, in that situation, binary options traders should enter a CALL in the GBP/USD.

On the other hand, if the US manufacturing PMI comes above 60 and the price closes below the support around 1.5585, binary options traders should consider a PUT in the GBP/USD.

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About our Forex Analyst:  Asif Imtiaz

 

Asif worked as a prop trader for almost a decade, and later he managed trading operations for one of the largest foreign exchange strategy developers in Europe. Currently, he works as a trading consultant to several brokers and writes on various tech and financial topics. You can reach him at contact@asifimtiaz.com

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Asif Imtiaz

Asif worked as a prop trader for almost a decade, and later he managed trading operations for one of the largest foreign exchange strategy developers in Europe. Currently, he works as a trading consultant to several brokers and writes on various tech and financial topics. You can reach him at contact@asifimtiaz.com

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