GBP/USD Forecast: Sellers to take action with a drop below 1.3560, eyes on UK sanctions

GBP/USD has staged a rebound after testing 1.3560 support area.
The pair is likely to face additional selling pressure unless geopolitical tensions de-escalate.
UK is set to announce sanctions against Russia.

Eren Sengezer FXStreet

GBP/USD has faced heavy bearish pressure early Tuesday and declined below 1.3600 before staging a rebound in the morning European session. The pair could extend its slide in case sellers manage to drag it below the key 1.3560 support area.

The risk-averse market environment during the Asian trading hours helped the greenback find demand as a safe haven and weighed on GBP/USD. Kremlin announced late Monday that Russia will recognise the breakaway regions of Eastern Ukraine, Donetsk and Luhansk, forcing investors to seek refuge on renewed fears of a military conflict.

European equity indexes started the day sharply lower and US stocks futures are losing between 1.2% and 2.2%, reflecting the souring market mood.

Later in the day, British Prime Minister Boris Johnson is expected to unveil the "first barrage of economic sanctions" against Russia. Meanwhile, British Health Secretary Sajid Javid said on Tuesday that they could conclude that an invasion of Ukraine had begun.

The US economic docket on Tuesday will feature IHS Markit's preliminary February Manufacturing and Services PMI reports and the Conference Board's Consumer Confidence Index data. Additionally, the White House will announce sanctions against Russia as well.

The risk perception is likely to remain the primary market drive on Tuesday and geopolitical tensions are unlikely to ease unless Russia takes a step back and reaffirms its intention to look for a diplomatic solution.

GBP/USD Technical Analysis

GBP/USD fell below the 200-period SMA on the four-hour chart but reversed its direction after testing the 1.3560 support area, where the 100-period SMA and Fibonacci 61.8% retracement of the latest uptrend align. The Relative Strength Index (RSI) on the same chart, however, is staying below 50, suggesting that the latest rebound is a technical correction.

In case a four-hour candle closes below 1.3560, additional losses toward 1.3540 (static level) and the 1.3510/1.3500 area (static level, psychological level) could be witnessed.

On the upside, interim resistance seems to have formed at 1.3580 (static level) ahead of 1.3600 (psychological level) and the 1.3630/1.3640 area (static level, February 18 high).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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