GBP/USD reverses a dip to sub-1.2300 levels, still deep in the red

• A combination of factors exerted some fresh downward pressure on the GBP/USD on Monday.
• Reports of a split on Johnson's coronavirus strategy, Brexit uncertainties weighed on the pound.
• A turnaround in the risk sentiment underpinned the USD and added to the intraday selling bias.

The GBP/USD pair continued losing ground through the mid-European session and refreshed daily lows in the last hour, albeit quickly recovered few pips thereafter.

The pair continued with its struggled to find acceptance or build on its momentum beyond the 1.2400 round-figure mark and came under some fresh selling pressure on the first day of a new trading week. Despite speculations that the Fed might push interest rates below zero, the US dollar regained some traction and was seen as a key trigger behind the pair's intraday pullback from the 1.2435 region.

This coupled with reports that UK prime minister Boris Johnson is facing Cabinet splits over his move to quarantine all travellers coming to the UK for 14 days further took its toll on the British pound. The sterling was further pressured by persistent Brexit-related uncertainties ahead of the third round of UK-EU negotiations, which momentarily dragged the pair below the 1.2300 mark. 

Meanwhile, a turnaround in the global risk sentiment, as depicted by a negative move in the equity markets, provided an additional boost to the USD's safe-haven status against its British counterpart. The combination of negative factors led to nearly 150 pips fall in the cable, though bulls showed some resilience below the 1.2300 mark, near support marked by a multi-week-old ascending trend-line.

This makes it prudent to wait for some strong follow-through selling before confirming a fresh bearish breakdown and positioning for any further near-term depreciating move, possibly towards the 1.22 mark. In the absence of any major market-moving economic releases on Monday, the broader market risk sentiment might influence the USD price dynamics and produce some short-term trading opportunities.

Technical levels to watch

Any subsequent fall is likely to find some support near the 1.2265 region (Friday’s swing low), below which the pair might turn vulnerable to break below the 1.2200 mark and test April monthly lows, around the 1.2165 area.

On the flip side, the 1.2390-1.2400 region might continue to act as an important resistance, which if cleared decisively, will set the stage for a move beyond the 1.2465 intermediate hurdle towards reclaiming the key 1.2500 psychological mark.