Today we have two important publications in UK:
1. Unemployment reading (GMT 8:30) – unemployment rate is expected 6.8% vs 6.9% prior. We believe there is scope for even bigger drop to 6.7%.
2. Bank of England Inflation Report – we think that MPC will upgrade its outlook on UK economy but near term inflation projections could be revised downward. However what counts the most is medium-term inflation outlook which should be at least stable – further economic and demand improvement would eventually pick up inflation.
Technically we've seen lot of supply that formed 'falling star' candle last week from 1.7000 resistance figure. On 4-hour timeframe we've noticed Head&Shoulders pattern (SHS) that could affect price in nearest term.
In medium term we are still bullish on Cable as it stays in uptrend, and actually good supports are near:
1.6840/20 – multiple peaks in April, ascending triangle pattern.
1.6765/50 – possible range of next falling wave, 23rd April dip.
1.6700 – round level, 14th April bottom.
On the other hand we have some fresh resistance levels:
1.6900 – Shoulders line, round level, Fibonacci retracement 38.2% from last week downfall.
1.6950/65 – Possible double bottom range from 30-minutes chart, Fibonacci retracement 76.4%.
1.7000 – Last week's top, round level.
On lower Timeframe (30-minutes) we see quasi-double bottom near today's Pivot Point 1.6870 (also 2nd May low). Pair is now (GMT 8:00) approaching Pivot R1, but traders may want to wait till data publications for further move. 1.6900 seems decent key S/R level for further Price Action.
Concluding: "Bulls make money, bears make money, pigs get slaughtered" – states market saying. Our baseline scenario is supported by medium term uptrend on the pair so we are looking for long opportunities in the first place:
1) 1.6700 – 1.6765 area, lower two supports somewhere near possible SHS range would be good opportunity to buy cheaper after first reaction to data.
2) 1.6900, break of shoulders line would expose 1.7000 figure where probably lies plenty of barrier options.
Our 2nd tier scenario, for bears, says that break of the SHS neckline (and yesterday's low) would provide 60-80 pips of downward move.