GBP/USD Forecast: Pound looks vulnerable despite thin holiday trading

GBP/USD has retreated toward 1.3000 early Monday amid renewed dollar strength. The pair stays in negative territory during the European trading hours and the technical outlook shows that sellers are likely to dominate the pair's action in the short term.

Although GBP/USD edged lower on Thursday and Friday, it managed to register gains last week. With the benchmark 10-year US Treasury bond yield continuing to edge higher at the beginning of the new week, however, the dollar started to outperform its rivals and weighed on the pair. The US Dollar Index, which rose nearly 0.7% last week, was last seen rising 0.2% on the day at 100.70.

Additionally, US stock index futures are pushing lower following a three-day weekend, pointing to a souring market mood. The lack of diplomatic progress between Russia and Ukraine heightens fears over a global economic slowdown and causes investors to seek refuge.

In an interview with CBS News on Sunday, Ukrainian Foreign Minister Dmytro Kuleba said that he was expecting an "intensification of heavy fighting in eastern Ukraine" in the coming weeks. Kuleba further noted that Russian aggression in Mariupol could be seen as a "red line" in negotiations with Russia. 

In the absence of high-impact data releases, the dollar could preserve its strength in case safe-haven flows continue to dominate the financial markets.

GBP/USD Technical Analysis

GBP/USD seems to have gained traction before testing 1.3000 but the pair faces several resistance levels that could easily cap the rebound. The first hurdle is located at the 1.3040/1.3150 area (static level, 50-period SMA on the four-hour chart) ahead of 1.3080 (static level, 100-period SMA) and 1.3100 (psychological level).

In the meantime, the Relative Strength Index (RSI) indicator stays near 40, suggesting that the latest recovery attempt was a technical correction and that buyers remain hesitant.

On the downside, 1.3000 (psychological level, static level) aligns as key support. In case this level turns into resistance, the next bearish targets could be seen at 1.2970 (April 13 low) and 1.2920 (static level).