GBP/USD quickly reverses a dip to sub-1.2800 level, 2-1/2 week lows
• Brexit uncertainties offset today’s upbeat UK services PMI and kept exerting downward pressure.
• A slight improvement in risk sentiment prompts some USD profit-taking and helps rebound from lows.
The GBP/USD pair quickly reversed an early dip to sub-1.2800 level and has managed to recover around 40-pips from 2-1/2 week lows.
Brexit jitters remerged this week after the EU Chief Negotiator Michel Barnier strongly opposed the UK PM Theresa May's latest Chequers plan and had been one of the key factors weighing heavily on the British Pound since the beginning of this week.
Adding to this, weaker incoming UK macro data - manufacturing and construction PMIs, released on Monday and Tuesday, made it even worse for the GBP bulls and kept exerting downward pressure on the major.
The bearish pressure did ease a bit during the early European session on Wednesday and was being supported by upbeat UK services PMI, albeit was quickly sold into amid resurgent US Dollar demand.
The pair finally broke through the 1.2800 handle touched an intraday low level of 1.2785 but found some support after the German Chancellor Angela Merkel’s CSU allies, in a draft communique, said that they wanted to have a close relationship with Britain after its departure from the EU.
This coupled with a slight improvement in risk appetite, as depicted by a modest rebound across European equity markets prompted some USD profit-taking and helped the pair to recover back to the 1.2820-25 region.
In absence of any major market moving economic releases from the US, broader market risk sentiment and any fresh Brexit-related news might continue to influence the price action through Wednesday's trading session.
Technical levels to watch
Immediate resistance is now pegged near mid-1.2800s, above which the pair is likely to aim back towards reclaiming the 1.2900 round figure mark. On the flip side, weakness back below the 1.2800 handle now seems to drag the pair below 1.2765 intermediate level towards testing its next major support near the 1.2710-1.2700 region.