GBP/USD quickly reverses a knee-jerk slide to sub-1.2800 level

   •  Brexit headlines continue to infuse volatility around GBP pairs.
   •  Subdued USD price action does little to influence the momentum.
   •  Investors seemed to wait for fresh political news-flow from the UK.

The GBP/USD pair quickly reversed a knee-jerk slide to sub-1.2800 level and has managed to recover around 50-60 pips from daily lows touched during the mid-European session.

After some early strength to an intraday high level of 1.2884, the pair came under some renewed selling pressure and tumbled by nearly 100 pips in reaction to Reuters’ headlines, which raised uncertainty/divergence over extensions to the Brexit transition.

According to the FT, the EU’s chief Brexit negotiator has proposed extending Britain’s transition out of the bloc until as late as December 2022. Meanwhile, the UK PM Theresa May's spokesman said that the UK does not need an extension to the implementation period, rather the PM is adamant that transition extension must end before next general election in June 2022.

The downtick, however, turned out to be short-lived and the pair quickly recovered back to mid-1.2800s. Investors seemed reluctant to place any aggressive and preferred to wait for any news-flow on the latest UK political developments, wherein Brexiteers were said to be preparing for a no-confidence vote in the PM within two days. 

With the incoming Brexit-related headlines turning out to be an exclusive drive of the sentiment surrounding the British Pound, a subdued US Dollar price action did little to influence the price action on the first day of a new trading week amid absent relevant market moving economic releases.

Technical levels to watch

Any subsequent up-move might continue to confront some fresh supply near the 1.2870-80 region and is closely followed by the 1.2900 handle, above which a fresh bout of short-covering might further lift the pair towards the 1.2935-40 supply zone.

On the flip side, sustained weakness below the 1.2800 handle, leading to a subsequent breakthrough the 1.2775-70 region might turn the pair vulnerable to resume with its prior depreciating slide towards challenging the 1.2700 round figure mark.