Sterling looks set for a consolidation phase as geopolitical headwinds resurface, likely preventing any sustained break above the recent 1.36 peak in the coming days as traders eye support below 1.35 amid heightened geopolitical concerns. While cable showed resilience last week, the flare-up in U.S.-Iran tensions after the U.S. said it seized an Iranian cargo ship injected a fresh dose of volatility into the market, pushing sterling down toward 10-DMA support by 1.3478. This renewed angst is likely to cap cable gains, as the optimism that drove the pair from trend lows below 1.32 evaporates.

Underlying futures positioning reinforces this. IMM net speculative data shows that while sterling longs have inched up slightly, traders have maintained substantial short positions throughout the conflict. Traders may use relief rallies to initiate new shorts due to long-standing concerns about sticky inflation, low growth and fiscal challenges troubling the UK outlook.

Technically, the path higher remains restricted. Immediate resistance is at the daily high of 1.3527, followed by the Ichimoku daily cloud top at 1.3544, followed more significantly by the upper Bollinger band at 1.3595 and Friday's high by 1.3599.

On the downside, support is provided by the 10-DMA at 1.3478, which aligns closely with the session low of 1.3475. A breach here will put the 200-DMA at 1.3413 and the daily cloud base at 1.3408 in sharper focus.
Sterling Chart:


(Paul Spirgel is a Reuters market analyst. The views expressed are his own)