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GBP/USD looks set to maintain a constructive tone during the coming week.
That means we are biased to expect further gains in the coming days, although the going will be slow owing to periodic setbacks related to geopolitical headlines.
The setup is constructive from a technical perspective as the exchange rate sits well above the 200-day moving average (MA).
Zooming in, the short-term trend appears underpinned by a rising 21-day MA, which means support for the coming week will be around 1.3542.
What does that mean in practical terms? It means when we do get weakness, it can extend down to this level, but it should be contained here.
It also means that a break below here would be the first signal that the wind could be changing direction in favour of the dollar and risks a move to the April horizontal support at 1.3450.
1.3450 is also where the 100-day MA is located, which is where support was found during periods of weakness in April.
The general setup is therefore constructive and 1.3650 should attract ahead of 1.37, but based on recent velocity, a move above 1.37 is held as a low probability outcome this week.
Zooming out again, we are looking at an exchange rate that is still on the rise, and there's the prospect of 1.870, the January high being retested.
The dollar remains the dominant force, and a gradual repricing lower from historically expensive levels is underway in the longer term.
The dollar is also not finding much lift from Middle East headlines: the issue around the Strait of Hormuz is hardly settled but the dollar is increasingly unresponsive to headlines. For now, that means the easiest route of travel for USD is lower with assymetric upside on positive headlines.
Turning to the pound sterling side of the equation, although politics offers some interest, the market isn't too bothered. There is inevitable talk about UK gilt yields rising on Monday, but that's probably more to do with another rise in oil prices than politics.
Our working base-case assumption is that the Labour Party will stick with Starmer simply on the basis that there is no clear-cut alternative who can unite the party and has the crucial momentum.