GBP/USD struggles for direction, stuck in a range around 1.3400 mark on Christmas Eve

• GBP/USD lacked any firm directional bias and seesawed between tepid gains/minor losses.
• Receding Omicron fears acted as a tailwind for the sterling and extended some support.
• Traders seemed reluctant to place aggressive bets amid the end-of-year thin liquidity.

The GBP/USD pair refreshed daily high in the last hour, albeit quickly retreated a few pips thereafter and was last seen trading in the neutral territory around the 1.3400 mark.

Following the overnight modest pullback from over one-month low, the GBP/USD pair seesawed between tepid gains/minor losses through the early part of the trading on Friday. The latest optimism led by reports that the Omicron variant might be less severe than feared helped offset worries about the continuous surge in new COVID-19 cases in the UK. Adding to this, a UK study indicated that Omicron infections are less likely to lead to hospitalization, which, in turn, acted as a tailwind for the British pound.

Apart from this, subdued US dollar demand was seen as another factor that provided a modest lift to the GBP/USD pair. That said, the UK-EU impasse over the Northern Ireland Protocol held back traders from placing aggressive bullish bets. Apart from this, the Fed's hawkish outlook – indicating at least three rate hikes next year – should limit any meaningful USD downside and cap gains for the pair. This, in turn, warrants some caution before positioning for any further appreciating move amid the year-end thin liquidity.

From a technical perspective, the overnight strong move beyond the post-BoE swing high, around the 1.3370-75 horizontal hurdle, could be seen as a fresh trigger for bullish traders. Hence, any meaningful corrective pullback could be seen as a buying opportunity and is more likely to remain limited near the mentioned resistance breakpoint. Nevertheless, the GBP/USD pair remains on track to end the week with strong gains and register its highest weekly close since mid-November.

Technical levels to watch