The British pound is mostly flat today, but selling off against safe havens such as the Japanese yen and the Swiss franc. Last Friday, GBP/USD fell sharply following US non-farm payroll data that was ahead of expectations. Following recent weakness, the pound is no longer looking overbought on a daily chart. Today is a critical day for the pound thanks to upcoming Markit/CIPS services PMI figures. As British exports are dominated by professional services, today's PMIs will be watched closely. If the figures remain strong (consensus estimates are high), the pound should rally as a result. While tangible progress from Brexit trade negotiations remain fairly unclear, the pound remains in a bull market. Turning to Brexit headlines, Theresa May's government has ruled out the UK's participation in the customs union following Brexit. Infighting between pro-EU and anti-EU elements within the party remain a source of political instability. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.410. EUR/GBP is flat, with the exchange rate above 0.8720. The pound is down slightly against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7780, while GBP/CAD is above 1.7510.
Looking at UK economic data this week, traders will be focused on upcoming PMIs and a Bank of England meeting. Later today, we’ll see Markit/CIPS services PMIs. Tomorrow, we’ll see BRC retail sales. On Wednesday, we’ll see Halifax house prices. Thursday is the key day, and markets will be focused on Governor Mark Carney’s outlook for the future. While no rate hike is expected this week, expectations are rising for more rate hikes this year. On Friday, we’ll see industrial and manufacturing output. Last week, Nationwide housing prices were significantly ahead of expectations.
As the pound continues to strengthen, we are now bullish on the currency in the medium-term. The pound is now looking overbought. This is based on a range of technical indicators looking at a weekly chart.