- GBP/USD has managed to stage a rebound after testing 1.3500.
- The British pound could gather strength in case risk flows dominate markets.
- Labour market data from the UK failed to trigger a noticeable market reaction.
GBP/USD has reversed its direction after falling all the way down to 1.3500 and recovered above 1.3550. The pair awaits new developments on the Russia-Ukraine conflict before extending its rebound. In case the market mood continues to improve, GBP/USD could target 1.3600 next.
Earlier in the day, Russia's Ifax news agency reported that Russian troops were returning to barracks after finishing the drills. The initial market reaction to this headline allowed investors to breathe a sigh of relief and risk-sensitive assets gained traction. As of writing, the UK's FTSE 100 Index was up 0.8% and S&P Futures were rising more than 1%.
Over the weekend, however, Russian Foreign Minister Lavrov noted that the end of the drills would be introduced as a de-escalation of the conflict by the west and called this 'predictable scenario and cheap domestic political points.' Hence, investors might remain on the sidelines until they are certain that Russia will not invade Ukraine.
Meanwhile, the data published by the UK's Office for National Statistics revealed earlier in the day that the ILO Unemployment Rate remained unchanged at 4.1% in three months to December. This print came in line with the market expectation and failed to trigger a market reaction. Underlying details of the jobs report showed that Average Earnings Including Bonus edged higher to 4.3% from 4.2% in the same period, surpassing analysts' estimate of 3.9%.
In the second half of the day, the Producer Price Index (PPI) data will be featured in the US economic docket. Nonetheless, market participants will keep a close eye on geopolitics and GBP/USD could face renewed bearish pressure if safe-haven flows start to flood the markets.
GBP/USD Technical Analysis
Although the near-term technical outlook suggests that sellers show no interest with the Relative Strength Index (RSI) indicator on the four-hour chart rising above 50, GBP/USD needs to clear 1.3550/1.3560 resistance (200-period SMA, Fibonacci 23.6% retracement) to extend its recovery.
Above that level, 1.3600 (psychological level, static level) aligns as the next bullish target ahead of 1.3620 (static level).
On the downside, 1.3520 (Fibonacci 38.2% retracement) could be seen as the first support before 1.3500 (psychological level, Fibonacci 50% retracement) and 1.3470 (Fibonacci 61.8% retracement).
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