Preview of the May UK services PMI due Wednesday 3rd June 2015

The services PMI is the big one for the UK and it has a chance to cement or add to the pound rally we've just seen

Services has got back to winning ways following the late 2014 dip and we're just shy of the 2014 highs. Services has been on a great run and have been in expansion for over 2 years

UK services PMI to April

The sector remained strong in April and we could well get another post election relief increase like we saw with the construction PMI

While business activity is the driver of the indicator the subcomponents will be important. Employment remains strong and we'll be looking for further signs of wage increases in the price data. Last month margins took a hit as wages rose and output prices fell for the first time since Oct 2014, and at the fastest rate for 3 years. If that trend continues then it could well mean that inflation is kept subdued. On the flip side it was noted that prices were dropping as competition heated up. That's a good sign as long as it means firms are competing over a rich pool of new business and not cutting prices because business is drying up

The expectation is for a small drop to 59.2 and if the pattern is the same as the construction PMI, then there is the possibility of a much better number being printed. Unless something has really gone wrong there shouldn't be much risk for a lower number and if it is, it's likely to be marginal. However, if it is low then that's going to dent hopes of improved growth in Q2 and that could weigh on the pound.

A strong number will have the market starting to feel positive about the UK once again and might get some of the rate hike crowd quietly nodding and winking to each other

Trading wise, a bad number missing by 2 or 3 points will go someway to undoing all the good work done Tuesday and anything over that, say 4-5 points, or more, and we could well see a return to the low 1.52's pretty quickly

An upside beat would likely be enough to add more fuel to the cable rally and we're likely to test 1.54 (depending on where we are at the time). Remember though, that the expectation is for a 3 point drop on last month so we need to see a 3 point beat just to break even on April

GBPUSD daily

The 200 dma at 1.5387 is probably too close to hold a decent number but it might hold a number matching April. More positive would be anything higher than 59.5. 1-2 points over that would probably be enough to see 1.54 tested and any number around 59.8-60.0 will see that taken out. 1.5420/25 has been an active S&R level (check the H4 for a better look), as has the Nov 2014 upper down trend line

As usual I'll be on the case as the numbers roll out and let's hope it brings us more action