GBP/USD is expected to remain tethered to geopolitical headlines in the near term, capped above 1.3600, as escalating conflict in the Middle East threatens to overshadow UK domestic fundamentals. Reports of Iranian attacks on U.S. warships in the Strait of Hormuz have abruptly undermined recent risk gains, once again thwarting bulls' attempts to establish a foothold above the 1.3600 level in recent sessions.

Despite a brief extension to a 10-week high of 1.3658 last Friday, sterling remains consolidative. The pair is currently navigating a range defined by the 38.2% Fibonacci retracement of the 1.3150-1.3658 move at 1.3468 and Friday’s peak at 1.3658. While the current spot price of 1.3562 remains above the 10-DMA at 1.3527 bulls remain likely to retain control.

Investors are now caught between the threat of an escalating U.S.-Iran conflict and critical economic milestones. While rising oil prices stoke global inflation fears, this Friday’s U.S. non-farm payrolls, forecast at +62k, and average earnings data, projected at +3.8% y/y, will be pivotal.

A stronger-than-expected print, for employment and earnings, could pivot the Federal Reserve toward a more hawkish tack, pressuring GBP/USD back toward the 200-day SMA at 1.3417. Conversely, a cooling of Middle East conflict tensions and inline payroll data could embolden bulls to re-target Friday's 1.3658 high and the Bollinger Upper Band at 1.3685 while ultimately aiming at the February 11 high of 1.3712. For now, the technical floor provided by bruised 100-DMA at 1.3473 and the Ichimoku Base Line at 1.3409 must hold to keep the medium-term recovery trend alive.
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(Paul Spirgel is a Reuters market analyst. The views expressed are his own)