British pound looks vulnerable despite weak trading over the holidays

• GBP/USD fell slightly towards the key handle of 1.3000 early Monday.
• The dollar retains its strength on the rise in US Treasury bond yields.
• Markets become risk averse early in the week.

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

Although GBP/USD fell slightly on Thursday and Friday, it managed to post some gains last week. With the yield on the benchmark 10-year US Treasury bond continuing to climb at the start of the new week, however, the dollar began to outperform its rivals and weighed on the pair. The US dollar index, which was up almost 0.7% last week, was last seen up 0.2% on the day at 100.70.

Additionally, US stock index futures are falling after a three-day weekend, indicating poor market sentiment. The lack of diplomatic progress between Russia and Ukraine is heightening fears of a global economic slowdown and pushing investors to take refuge.

In an interview with CBS News on Sunday, Ukrainian Foreign Minister Dmytro Kuleba said he expected 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.

Absent any high-impact data releases, the dollar could retain its strength should safe-haven flows continue to dominate financial markets.

GBP/USD technical analysis

GBP/USD appears to have gained ground before testing 1.3000 but the pair faces several resistance levels that could easily limit the rebound. The first hurdle is located in 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). ).

Meanwhile, the Relative Strength Index (RSI) remains close to 40, suggesting that the latest rally attempt was a technical correction and buyers remain hesitant.

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