The pound initially shrugged off UK finance minister Sunak's new announcements to bolster the economy yesterday but they remain part of the more supportive factors in the background, despite some skepticism still abound surrounding the UK economy.
The key thing to watch in the UK in 2H 2020 will be how will the government be able to avert a significant deterioration in labour market conditions - especially once its furlough program runs out in October.
The measures announced yesterday certainly helps, but it remains to to be seen if that will be enough to keep economic conditions more steady in the latter stages of the year.
As for the pound, it is continuing its good form on the week with cable keeping around 1.2640-50 levels in European trading today.
Buyers are extending the momentum on a break above the 100-day MA (red line) from last week and it is tough to ignore the technical signs, with EUR/GBP also falling back under 0.9000 and GBP/JPY also holding a break above its own 100-day moving average.
That said, cable is running closer towards key resistance from its 200-day MA (blue line) @ 1.2698 and that will be a key level to be mindful about.
There is some swing region resistance around 1.2650 currently but the key line in the sand will be the 200-day MA highlighted above.
Keep below that and sellers will be able to try and use the level as an area to wrestle back some downside momentum down the road. But break above that, and buyers may once again look towards retesting the 1.2800 level next.
The pound has enjoyed a solid bounce from 1.2250 to 1.2650 currently but I reckon the 200-day MA is a different beast for buyers to take on.
Unless the dollar capitulates amid firmer risk sentiment or the pound finds some other factor to rally, sellers may creep in to defend the key technical level in the sessions ahead.