Cable could be in for a selloff, as the pair formed a double top pattern on its 4-hour time frame. Price failed in its last two attempts to break past the 1.4700 major psychological level and is currently testing the neckline around 1.4350-1.4400.
A break below this support area could push the pair lower by 300-350 pips, which is the same height as the chart formation. The 100 SMA is above the 200 SMA for now, indicating that the path of least resistance is to the upside, but the gap between the moving averages is narrowing so a downward crossover signaling a return in bearish pressure could be possible.
Stochastic is already indicating oversold conditions, which means that sellers might need to take a break and allow buyers to take over. If so, GBPUSD could be drawn back to the tops at 1.4700 or perhaps on a break higher. Similarly, RSI is in the oversold area.
Trade catalysts for today include the UK services PMI and the US NFP release. The services PMI is expected to rise from 52.3 to 52.5 to indicate a faster pace of industry growth, and this might have an impact on pound action since it comprises a huge part of overall economic activity.
Still, Brexit poll updates could overshadow UK economic reports, as a wider lead in favor of those voting to leave the EU could wind up erasing the currency’s gains once more. On the other hand, a lead in favor of those voting to stay could give the UK currency a boost.
As for the NFP, analysts are expecting to see a 159K increase in hiring, lower than the earlier 160K rise. A weaker than expected result could be bearish for the dollar since this would undermine Fed rate hike hopes for June or July. Traders are also paying close attention to wage growth, with the average hourly earnings expected to show a meager 0.2% uptick, since this has been highlighted by Fed Chairperson Yellen.
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Kate has been a technical analysis covering forex for many years. She our daily forex outlook and works in the New York office of Forex.Today