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USDJPY has been moving sideways since March, in a broad range between 108 to 114. In the near term, the pair has firmed up after breaking above the 50-day moving average yesterday.

If there is continued upside momentum, then additional gains are likely, with scope to target the top of the range. However, the level at 114 will likely be challenging to break as it is seen as a strong resistance level. From this breakout point, a strong rally is expected towards the prior high of 114.73.

Failure to rise above 114 in the short term would see a reversal back down but support is expected at the 50-day MA around 112.90. The bullishly aligned 50 and 200-day moving averages are painting a positive picture overall. USDJPY is short-term bullish, while RSI is above 50.

The market is expected to trade sideways likely between 112 and 114 for now. There is no change to the medium-term neutral outlook.

The U.S dollar continues to move higher against the Japanese yen, hitting 113.46, following a break-out in the price of longer-dated U.S bond-yields. The USDJPY currently trades around the 113.40 level, with the Bank of Japan’s monetary policy decision early today having a muted effect on the pairs recent rise.

The BOJ kept short-term rates on-hold at -0.10 percent, and pledged to buy JGB bonds at the current pace, noting inflation is gradually rising. Traders now look to third quarter GDP figures from the United States, and CORE PCE figures for November, which is the FED’s preferred measure of inflation.

The USDJPY pair remains strongly bullish while trading above the 113.10 level, should price-action move above the 113.40 level, buyers may start to target the 113.80 region.

If the USDJPY pair falls below the 113.10 level, sellers may then push the pair towards the 112.70 and 112.40 technical support levels.

The British pound has again failed to find buying interest above the key 1.3400 technical level against the U.S dollar. The GBPUSD pair has tumbled back towards the 1.3360 support level, following another UK Conservative Party scandal overnight. Damian Green, has been sacked as the United Kingdom’s First Secretary of State, further weakening the current British PM Theresa May’s leadership. Traders now look to raft of high-impact macro-economic data coming from the United States later today.

GBPUSD sellers remain in control of the pair while price action trades below the 1.3400 level. Further losses below the 1.3360 level may extend towards the 1.3330 and 1.3300 support regions.

Should price action move back above the 1.3400 level, GBPUSD buyers will regain the upper-hand. Key resistance levels to the upside remain 1.3418 and 1.3444.

The US economy will be front and centre on Thursday as the Commerce Department sets to unveil its third and final estimate of third quarter growth.

The official GDP report is scheduled for release at 13:30 GMT, and is expected to show 3.3% annual growth between May-July. That's the fastest pace of expansion in three years.

The US economic calendar also sees the release of initial jobless claims for the period ended 16 December. Meanwhile, the Philadelphia Fed will release its manufacturing survey for December and the Federal Reserve Bank of Chicago will issue its monthly National Activity Index. Rounding out the US release schedule is the housing price index courtesy of the Federal Housing Finance Agency.

North of the border, the Canadian government will report on retail sales and consumer inflation at 13:30 GMT. Receipts at Canadian retail stores are forecast to climb 0.3% in October. The consumer price index (CPI) is expected to rise 2% annually in November following a 1.4% increase the previous month.

Earlier in the day, the Bank of Japan (BOJ) voted to leave monetary policy on hold in a decision that was widely predicted by the financial markets. The BOJ voted 8-1 to keep interest rates at a record low of -0.1%.

'Japan's economy is expanding moderately,' the BOJ said in its official policy statement. The central bank added that inflation is “likely to continue on an uptrend” back toward its 2% target.

Japan's gross domestic product (GDP) has expanded for seven straight quarters, the longest stretch of uninterrupted growth in over a decade.

EUR/USD

The euro saw its rally stall on Wednesday, with the EUR/USD pair struggling to return to the 1.1900 level. The pair was last seen trading at 1.1867, where it was little changed compared to the previous close. From a technical perspective, immediate support is located at 1.1825, followed by 1.1800. On the opposite side of the ledger, resistance is seen up ahead at 1.1900.

GBP/USD

The British pound stalled again at a key resistance level, a sign that the bulls were struggling to justify bigger rallies in the wake of the US Federal Reserve's decision to raise interest rates. The GBP/USD exchange rate was last seen trading at 1.3362, where it was down 0.1% compared to the previous close.

USD/JPY

The Japanese yen was little changed following the BOJ rate statement. The USD/JPY was last seen trading at 113.39, having established a narrow range throughout the early morning session. The pair was recently rejected at the 113.50 resistance level, a sign that further upside could be limited. Initial support is located at the 113.00 level. A clean break above 113.50 would put USD/JPY on a collision course with the 114.40 mid-term resistance.

Asian markets woke up on Thursday to the news that Republicans had passed the long-awaited tax bill. President Trump is now just a pen stroke away from overhauling the tax code. Interestingly there isn't any fireworks on the announcement of Trump's Christmas gift; because as expected, the good news is already priced in.

In fact, the reaction was more evident in fixed income markets. U.S. 10-year bond yields traded above 2.5% for the first time since March 2017, allowing the yield curve to steepen after flattening for most of 2017. The spread between 2-year and 10-year treasury bonds climbed more than 12 basis points, reaching 63 basis points, after falling to its lowest level in a decade last week. The spike in long-term bond yields is supposed to be positive for the U.S. dollar, as it suggests the Federal Reserve should become more aggressive in tightening policy next year. However, the dollar's reaction was muted because there's another side to this story. The additional supply of U.S. bonds due to the unfunded tax cuts, will probably make U.S. treasuries less attractive in the longer run, and given that most central banks are trying to catch up with the Federal Reserve, yields in Europe and other markets are also anticipated to move higher in 2018, thus narrowing the interest rate differentials gap.

The enormous expected increase in U.S. deficit will also put the U.S. sovereign credit rating at risk. If any of the credit agencies- Standard & Poor's, Moody's or Fitch downgrades the U.S. sovereign rating, yields will spike even higher. However, the impact on the dollar won't necessarily be positive, with the opposite reaction being more likely.

The Yen's reaction was also muted to Bank of Japan's monetary policy decision. As expected, the central bank kept interest rates unchanged at -0.1% and maintained its 10-year bonds yield target at around 0%. Given that weak inflation is expected to continue dominating the monetary policy outlook, I don't expect any significant change in policy next year. Thus, the Japanese Yen will continue to take its cue from risk appetite/aversion in equity markets for the foreseeable future.

Euro traders are awaiting the outcome of today's Catalonia's election. Polls are suggesting that it will be a tight race between the Catalan Republican Left party, which supports independence and Ciudadanos which is in favor of a unified Spain. Given that the election is not expected to be decisive and parties may form coalitions to govern, the risk of tensions flaring with Madrid again, remain limited

Key Highlights

• The British Pound is holding the 1.3350 support area nicely against the US Dollar.
• A major contracting triangle is forming with support at 1.3340 and resistance at 1.3460 on the 4-hours chart of GBP/USD.
• A successful break above 1.3460 will most likely lift the market sentiment in favor of more gains.
• The UK’s GfK Group Consumer Confidence in Dec 2017 came in at -13, down from the last -12.

GBPUSD Technical Analysis

During the past few days, the British Pound was seen trading in a range above the 1.3300 level against the US Dollar. However, the GBP/USD pair is slowly approaching a major break either above 1.3460 or below 1.3340.

Looking at the 4-hour chart, the pair found support recently at 1.3304 and started an upside move. It broke the 50% Fib retracement level of the last decline from the 1.3465 high to 1.3304 low. However, the pair is facing major hurdles on the upside near 1.3440-50.

The current price action is positive above the 1.3300 handle and the 200 simple moving average (green, 4-hour). It seems like there is a major contracting triangle is forming with support at 1.3340 and resistance at 1.3460.

The pair might continue to consolidate in a range of 1.3340-1.3460 before making the next move. Should there be a 4-hour close above 1.3460, the pair could test the 1.618 Fib extension of the last decline from the 1.3465 high to 1.3304 low.

On the other hand, if GBP/USD buyers fail to take the pair higher, there are chances of a downside reaction toward 1.3350. Further below 1.3340, the pair may move into the bearish zone.

Today, the US Gross Domestic Product figures for Q3 2017 will be released by the US Bureau of Economic Analysis. The forecast is aligned for a 3.3% rise (annualized). If the actual is below the estimate, GBP/USD might move above 1.3460. On the flip side, if the US GDP registers a growth of 3.3% or more, then GBP/USD will most likely come under bearish pressure.

Key supports to watch are 1.3340 and 1.3300, and resistances on the upside are at 1.3460 and 1.3500.

Market movers today

We have a very thin calendar ahead of us today with virtually no significant data release in any of the major economies.

There will be some focus on the Catalan regional election taking place today. The election was called by Spanish Prime Minister Mariano Rajoy in October after the invocation of Art icle 155 of the Spanish Constitution of 1978, declaring the entire Catalan government removed from office. The last opinion polls showed a race too close to call with the main unionist and separatist parties were running neck and neck.

Today, the Czech Republic's central bank (CNB) will announce its decision on the policy rate. The CNB delivered a 25bp hike at its November meeting but , as this was anticipated by the market , we believe it is more important to watch out for the CNB's next step. Given some slightly disappointing data releases recently, we maintain the view that the CNB will keep rates unchanged at its 21 December meeting but move on with additional hikes in 2018. For more details on our latest views on key emerging markets, please see our latest Emerging Market Briefer which was published yesterday.

Selected market news

The Asian markets are mixed this morning despite the progress on approving tax cuts in the US. Yesterday, the House of Representative passed the tax reform, meaning the final tax bill now only needs Trump's signature before taking effect . Focus is now shifting to passing a shortterm government funding bill before the current funding expires on Friday. We expect Congress to pass the short -term funding bill, which would keep the government running until sometime in mid-January.

This morning, the Bank of Japan (BoJ) kept its monetary policy unchanged today as widely expected; hence it maintained its short-term policy rate at -0.1% and its target for the 10-year yield at around 0%. The decision was taken with an 8-1 vote with Goushi Kataoka once again dissenting, arguing that the BoJ should be ready to do more if inflation disappoints. There were a few minor tweaks in the statement although the BoJ became slightly more upbeat on the Japanese economy. However, this is unlikely to change the policy mix, especially as inflation pressures remain weak. In our main scenario, we still expect Haruhiko Kuroda to be reappointed when his current term as governor ends in April, while we believe the BOJ will keep its current ‘QQE with yield curve control' policy unchanged in 2018. Market reaction in USD/JPY on the initial statement was limited.

In China, at the at the annual Central Economic Work Conference in Beijing, economic policy makers agreed to ‘fight the battle of preventing and resolving major risks, with a focus on preventing and controlling financial risks'. Policy makers did not repeat language on out right deleveraging from the previous two years, but instead focused comments on risk in the financial system.

Headlines/Economic Data

General Trend: Asia equity markets trade mixed, in line with NY trading session.

BoJ tweaks statement as official Kataoka continues to dissent

Asia Pacific companies start to comment on financial impact of US tax reform (Australia’s Bluescope Steel, New Zealand-based Tourism Holdings)

South Korean Chipmakers trade lower; Energy companies outperform

Indonesia Rupiah rises on Fitch sovereign upgrade

Japan

Nikkei 225 opened -0.2%; closed -0.1%

BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED, Vote 8-1; Said will make policy adjustments as appropriate based on economy, prices and financial conditions. (Note: This statement was not in the prior policy review. On Dec 15th, there was press speculation that the BoJ might 'tweak' its message as dissenter called for more easing, said a US financial press report)

BoJ official Kataoka issues dovish dissent at 3rd straight policy meeting: Said considering that, taking account of risk factors such as the consumption tax hike and a possible economic downturn in the US, it was desirable to achieve the price stability target in FY2018; Should take additional easing if delay in hitting inflation target continues due to domestic factors and it is necessary to include that in the text; Possibility of the y/y rate of change in the CPI increasing toward 2% going forward was low at this point; Appropriate to purchase JGBs so that yields on JGBs with maturities of 10 years and longer would be broadly lowered.

Japan investors net bought ¥51.0B in foreign bonds v sold ¥487.6B in prior week; Foreign investors net sold ¥622.5B in Japan stocks v sold ¥84.8B in prior week

Japan Nov Nationwide Dept Store Sales y/y: +2.2% v -1.8% prior; Tokyo Dept Store Sales y/y: 3.8% v -0.3% prior

Looking Ahead: BoJ Gov Kuroda due to hold post rate decision press conference at 1:30 GMT

Korea

Kospi opened flat, has since traded lower

Weakness in the chip sector: Samsung Electronics -3%, Hynix -3.5%

LG Display +0.1%: South Korea to hold meeting on Dec 26th on company’s planned KRW1.8T investment in China

According to industry sources, most luxury restaurants and buffet restaurants at major hotels in Seoul have almost been fully booked for Christmas and year-end holidays - Korean press

South Korea Dec 20-day Exports y/y: 16.4% v 9.7% prior; Imports y/y: 19.5% v 14.0% prior

Bank of Korea (BoK) Gov Lee: Economy to grow close to potential rate in 2018; CPI near 2% target

South Korea Govt ruling Democratic Party agreed to seek a package of measures to ensure fair transactions among large and smaller companies, including bolstering negotiating power for subcontractors

South Korea to announce financial deregulation in Q1 next year

(US) White House said to have stepped up planning for potential military options for stopping North Korea's nuclear weapons program - UK Telegraph

China/Hong Kong

Hang Seng opened -0.1%, Shanghai Composite -0.2%; Markets later pare losses

Hang Seng Materials Index +2%, Energy +1%, Information Technology +0.8%, Consumer Goods +0.8%, Financials +0.6%

Tsingtao Brewery -3% (Japan’s Asahi lowers stake)

(CN) Renewed speculation that China 2017 GDP growth may be higher than in 2016 (6.7%) – Chinese Pres

(CN) Central Economic Work Conference Statement: Prudent monetary policy should be kept neutral, the floodgates of monetary supply should be controlled, and credit and social financing should see reasonable growth

(CN) PBoC Researcher calls for monitoring of risks related to debt and liquidity; China should increase reforms to prevent financial risks – China Daily

(CN) China Stats Official says can use innovation and other ways to evaluate the economy; supports new ways to measure the economy - China Daily

(CN) China said to have temporarily lifted coal import restrictions

(CN) China Wuhan Gas says it has placed limits on monthly residential natural gas purchases as of Dec 20th

(CN) PBoC OMO: Injects CNY70B in 7,14 and 28-day reverse repos v CNY80B prior; Net drains CNY10B v injected CNY10B prior

(CN) PBoC sets yuan reference rate at 6.5795 v 6.6066 prior (highest setting since late Sept )

(HK) Hong Kong Dollar (HKD) trades at lowest level since early 2016

(CN) China said to have temporarily lifted coal import restrictions

3800.HK Considering solar material business spin-off +10%

Australia/New Zealand

ASX 200 opened +0.1%; closed -0.3%

ASX 200 Resources Index +1%, Energy +0.9%; REITs -1.1%, Utilities -0.5%, Financials -0.4%

Bluescope Steel [BSL.AU] +5%: Raised H1 outlook on estimated impact of US tax reforms

(NZ) NEW ZEALAND Q3 GDP Q/Q: 0.6% V 0.6%E; Y/Y: 2.7% V 2.4%E; Prior q/q revised higher from 0.8% to 1.0%; Prior y/y revised higher from 2.5% to 2.8%

(AU) Australia Nov RBA Govt FX Transactions (A$): -457M v -721M prior

(AU) Australia Treasurer Morrison: Australia needs to cut corporate taxes after US moves

(AU) Fitch: Australia's budget update reinforces improving outlook

Other Asia

(ID) Fitch upgrades Indonesia Sovereign Rating to BBB from BBB- (lowest level of investment grade); Outlook stable [**Note: The rating at Fitch is now above the rating BBB- rating that S&P has for Indonesia (outlook stable) and Moody’s Baa3 rating (outlook Positive)]

(IN) India 10-yr bond yield tests 17-month high after the Reserve Bank of India’s (RBI) minutes showed that all members of rate setting committee were worried due to rise in inflation and an uncertain recovery of growth

(MY) Malaysia Central Bank (Bank Negara): Onshore Ringgit (MYR) liquidity has improved

(TH) Thailand Nov Trade Balance: $1.76B v $755Me; Exports y/y: 13.4% v 7.2%e

Noble Group [NOBG.SG] +4%: Confirmed that it obtained extension on debt waiver

Looking Ahead: Taiwan Central Bank to hold policy meeting

North America

US equity markets ended mixed: Dow -0.1%, S&P500 -0.1%, Nasdaq flat, Russell 2000 +0.2%

S&P500 Energy Sector +1.4%; Real Estate -1.1%

(US) US House of Reps passes tax bill (as expected); The re-vote was needed after procedural irregularity

(US) Pres Trump: my advisors think markets have not yet fully digested the tax bill

(US) President Trump is said to plan to sign the tax bill on Wed, Jan 3rd, according to a financial press report.

(US) House GOP Leaders said to be unsure if they have enough votes to pass stop-gap bill to avert partial government shutdown on Saturday – financial press; No vote has been scheduled thus far, says the report.

(US) The House Rules Committee is expected to meet at 8 AM EST on Thursday regarding the stopgap bill, according to a separate financial press report.

Looking Ahead: US final Q3 GDP, along with Canada Nov CPI and Oct Retail Sales data due on Thursday.

Europe

(UK) PM May to allow a delay from Britain’s departure from the EU in exceptional circumstances - financial press; This is a compromise with rebellious pro-EU lawmakers against the idea of setting a fixed exit day.

(UK) Dec GFK Consumer Confidence: -13 v -12e

(DE) German Monthly Report: High debt and asset prices may be economic risk

M&A: Euronav [EURN.BE]: Said to be close to a deal to merge with Gener8 Maritime Inc – US financial press; Merged company would be one of the largest oil tanker owners in the world

Looking Ahead: Catalonia due to hold parliamentary elections

Levels as of 01:00ET

Nikkei225 -0.1%, Hang Seng +0.5%; Shanghai Composite +0.6%; ASX200 -0.3%, Kospi -1.5%

Equity Futures: S&P500 +0.0%; Nasdaq100 -0.1%, Dax +0.1%; FTSE100 -0.0%

EUR 1.1822-1.1863; JPY 113.45-113.20; AUD 0.7674-0.7655;NZD 0.7019-0.6996

Feb Gold -0.1% at $1,269/oz; Feb Crude Oil -0.1% at $58.03/brl; Mar Copper +0.1% at $3.19/lb

For the 24 hours to 23:00 GMT, the AUD rose 0.09% against the USD and closed at 0.7666.

LME Copper prices rose 1.2% or $80.0/MT to $6925.0/MT. Aluminium prices rose 1.5% or $31.0/MT to $2092.0/MT.

In the Asian session, at GMT0400, the pair is trading at 0.7664, with the AUD trading marginally lower against the USD from yesterday’s close.

The pair is expected to find support at 0.7653, and a fall through could take it to the next support level of 0.7641. The pair is expected to find its first resistance at 0.7678, and a rise through could take it to the next resistance level of 0.7691.

Amid no key macroeconomic releases in Australia today, investors will focus on global macroeconomic events for further direction.

The currency pair is showing convergence with its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the EUR rose 0.27% against the USD and closed at 1.1873.

On the macro front, the Euro-zone’s seasonally adjusted current account surplus narrowed to €30.8 billion in October, after recording a revised surplus of €39.2 billion in the prior month.

Separately, Germany’s producer price index (PPI) climbed less-than-anticipated by 2.5% on an annual basis in November, rising at its weakest pace in four months. The PPI had recorded a gain of 2.7% in the previous month, while markets were expecting for an advance of 2.6%.

In the US, data showed that existing home sales climbed 5.6% on a monthly basis to a level of 5.81 million in November, notching its highest level since December 2006, thus suggesting that the nation’s housing sector is on a stable path to recovery. Existing home sales had registered a revised reading of 5.50 million in the prior month, while investors had envisaged for a rise to a level of 5.53 million. On the other hand, the nation’s MBA mortgage applications recorded a drop of 4.9% in the week ended 15 December 2017, compared to a fall of 2.3% in the prior week.

Meanwhile, the US House of Representatives, voting for the second time, approved a revised Republican tax bill, passing the country’s biggest tax overhaul in three decades.

In the Asian session, at GMT0400, the pair is trading at 1.1866, with the EUR trading 0.06% lower against the USD from yesterday’s close.

The pair is expected to find support at 1.1829, and a fall through could take it to the next support level of 1.1793. The pair is expected to find its first resistance at 1.1902, and a rise through could take it to the next resistance level of 1.1939.

Moving ahead, traders would look forward to the Euro-zone’s flash consumer confidence index for December, scheduled to release later in the day. Moreover, the US 3Q GDP and initial jobless claims data, set to release later today, will keep investors’ on their toes.

The currency pair is showing convergence with its 20 Hr moving average and trading above its 50 Hr moving average.