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EUR/USD's short-term bearish momentum has abruptly ended. Hourly resistance is given at 1.1863 (14/12/2017 high). Hourly support given at 1.1718 (12/12/2017 low). Expected to show sideways price action.

In the longer term, the momentum is now turning largely positive. We favour a continued bullish bias. Key resistance is holding at 1.2252 (25/12/2014 high) while strong support lies at 1.0341 (03/01/2017 low).

The total holdings of the Bank of Japan's is now standing at all-time high. The Japanese quantitative easing has sent the level of debt very high because of the massive quantitative easing over the past decade. It has been a while that the sustainability of such a debt level is being questioned.

What is clear is this debt level will make it very tough for the BoJ to normalize the monetary policy within at least the next few years. Lowering the stimulus would likely trigger massive turmoil in the economy.

For the time being, wages are not increasing and inflation is still not there yet to help killing the debt. It is been really while since the BoJ is all-in and we do not see this stopping in the medium-term.

Currency-wise, markets are bullish on the USDJPY pair on strong expectations on the Fed's rate path next year. We believe that there is a strong likelihood that markets will be disappointed by the Fed (while markets clearly know that BoJ cannot really do anything for the time being). Ironically, we then stand ready for renewed Yen bulls at the start of 2018 which will definitely not help the BoJ. Times are difficult for the BoJ.

The euro is showing little movement in the Wednesday session. Currently, EUR/USD is trading at 1.1857, up 0.14% on the day. On the release front, German PPI slowed to 0.1%, shy of the estimate of 0.2%. As well, the Eurozone Current Account Surplus dropped sharply to EUR 30.8 billion, well short of the estimate of EUR 33.4 billion. In the US, today's key event is Existing Home Sales. Thursday is a busy day in the US, with the release of third quarter Final GDP. We'll also get a look at the Philly Fed Manufacturing Index and unemployment claims.

President Trump can claim victory – almost. Trump's tax reform bill was passed in the House of Representatives and the Senate on Tuesday, but the bill is being sent back to the House for another vote due to a procedural requirement. The bill is expected to be ratified by the House and will then be sent to Trump to be signed into law. As expected, the congressional votes went along party lines, with the Senate narrowly approving the bill by a count of 51-48. This marks the first major overhaul of the US tax code in 30 years, and reduces corporate taxes from 35% to 21%. After failing to overturn Obamacare, the Republicans can finally chalk up their first legislative victory in the Trump administration, ahead of Congressional elections in 2018.

The US economy continues to fire on all cylinders, and should do well on Thursday's report card, with the release of Final GDP for Q3. Preliminary GDP posted an impressive 3.3% gain, and the markets expect Final GDP to be revised downwards to 3.1%, which still indicates strong economic expansion. The Federal Reserve wrapped up 2018 with a quarter-point hike, and another increase is widely expected at the January meeting. Strong economic numbers and this accelerated pace of rate increases bodes well for the US dollar against the euro and other major rivals.

In Germany, coalition talks continue to grind slowly, as President Angela Merkel tries to form a new government. Merkel's conservative bloc suffered losses in the September election, and talks with smaller parties failed to break the political deadlock. Merkel has now shifted her efforts towards her previous junior coalition party, the Social Democrats (SDP). On Friday, the SDP voted to begin exploratory talks with Merkel, with a view to discussing substantive issues in January. Many SDP lawmakers want a more senior role for the SDP in any coalition, and the SDP will likely demand key portfolios in a new government. Despite the political uncertainty, the German economy continues to look very strong.

US senate passed the tac bill, House to revote
Donald Trump may be able to sign the most radical tax overhaul in a generation
The size of the fiscal injection does matter

Republican's Tax overhaul bill encountered another procedural snag and it must have made Mr Trump cringe who is aching to get this bill over the line before Christmas. However, the Grinch effects are more empowering. The US Senate had to vote again after making the relative minor provisions and the ball is once again in the House's court. Perhaps, Donald Trump may be able to sign the most radical tax overhaul in a generation. Signing the tax overhaul bill will give Trump some credibility after a massive failure to repeal the Obama healthcare bill

The tax overhaul bill is supposed to provide a massive kick for the US economy to energise once again (as Republicans claim that $1.5 trillion would encourage the corporation to spend more). Nonetheless, we do not expect the markets to move massively up when the Senate revotes and passes the bill because traders have already priced this in. In fact, buy the rumour and sell the fact could be the trade when Trump signs the tax overhaul bill. Having said that, the size of this fiscal injection does matter and it provokes traders to rekindle their expectations of US interest rate in 2018 when unemployment is already at all-time low and economic growth is flirting with a level of 2.5%.

European markets are picking up the momentum from Wall Street where most indices dipped in the negative territory. Given the massive gains we have experienced throughout this year, it would be normal for traders to take some chips off the table in order for them to celebrate the festive season.

The British pound may not be impacted much by the Brexit negotiations process as we do not expect any big news to lateralise until next year. Therefore, the economic data remains the key denominator. The CBI manufacturing data released yesterday confirmed that manufacturing sector's health isn't ill. However, the higher CPI numbers are squeezing consumers the feeble wage growth isn't providing any aid. The upcoming CBI retail sales number would be particularly intriguing as investors will try to connect the dots because according to last week's retail sales number, things aren't that worse.

Notes/Observations

European Stock rally struggles as Pres Trump nears his first major legislative victory -Sweden, Thailand keep rates on hold

Catalonia Parliamentary polls show the contest between pro-secessionist and unionist parties is too close to call

Asia:

Thailand kept interest rates unchanged as expected

China reiterates will maintain prudent and neutral monetary policy, to boost imports for balanced trade, to cut import tariffs for some products

Europe:

Swedish Central Bank keeps rates unchanged, ends QE program, but maintains heavy presence in bond markets

BoE agents summary of business conditions pointed to continued modest growth in spending over the coming year; Recruitment difficulties had intensified and were above normal in a range of activities

IMF sees UK economy growing 1.8% in 2018, notes Brexit weighing on UK domestic demand

Reportedly the Bank of England (BoE) expected to say EU banks to be allowed to operate in the UK ‘as normal' following Brexit, offering wholesale finance would operate under existing rules, even in a no-deal scenario

Americas:

US Senate votes to pass Republican Tax legislation with the final vote 51 to 48, with the House to take the final vote later today.

Economic Data:

(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED (ends QE program, but maintains heavy presence in bond markets)

(DE) Germany Nov PPI M/M: 0.1% v 0.2%e; Y/Y: 2.5% v 2.6%e

(EU) Euro Zone Oct Current Account (Seasonally Adj): €30.8B v €39.2B prior; Current Account NSA (unadj): €35.9B v €43.2B prior

(IT) Italy Oct Current Account: €6.5B v €4.3B prior

Fixed Income Issuance:

None seen

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

Indices [Stoxx600 -0.1% at at 390.5, FTSE -0.1% at 7536, DAX -0.1% at 13207, CAC-40 -0.2% at 5373, IBEX-35 -0.7% at 10164, FTSE MIB -0.3% at 2222199, SMI -0.1% at 9392 , S&P 500 Futures +0.3%]

Market Focal Points/Key Themes: European trade mostly lower rebounding from the session lows, with Asian Indices mixed and US futures pointing to a higher open following the US Senate vote to pass the Republican tax legislation. Corporate news flow has been quiet, however shares of Stada outperform after announcing domination and profit and loss transfer agreement. Elsewhere Dufry trades higher after Paul Singer builds over 5% stake; Low and Bonar trades sharply lower after adjusting its outlook and the stepping down of its CEO; Drax trades almost 5% lower after cutting its EBITDA outlook. Looking ahead notable earners include General Mills and Blackberry.

Equities

Consumer Discretionary [Dufry [DUFN.CH] +3% (Paul E. Singer discloses ~5.6% stake), Low & Bonar [LWB.UK] -19% (Trading update: Guides FY17 adj PBT £30-31M; CEO Brett Simpson resigns; Names Trudy Schoolenberg interim CEO)]

Healthcare [Stada Arzneimittel [SAZ.DE] +9% (Domination and profit and loss transfer agreement pursuant to sections 291 et seqq.)]

Industrials [Fenner [FENR.UK] -6% (Names Brett Simpson as new CEO)]

Energy [Genel Energy [GENL.UK] +3% (Refinancing of GENEL01 approved by bondholders' meeting), Drax Group [DRX.UK] -4% (Cuts EBITDA outlook)]

Speakers

IMF: Brexit is weighing on UK domestic demand; Economy seen growing 1.8% in 2018

(ID) Indonesia Fin Min Indrawati: Sees Q4 GDP growth at 5.1%

(SE) Sweden Central Bank (Riksbank) Gov Ingves reiterates Sweden still needs expansionary monetary policy

Currencies

EUR/SEK crown surges briefly as Riksbank leaves rate path unchanged

GBP/USD cable trades steady ahead of PM May's interrogation on Brexit by some of the most senior and powerful MPs in the Commons.

Fixed Income

Bund futures trade 162.35 down 15 ticks, as expectations that the Trump administration's tax reforms would pass through congress. Upside sees 162.75 then 163.25. A reversal targets 161.50 then 160.38.

Gilt futures trade at 125.47 down 23 ticks near the mid-point for the 2017 trading range. Continued upside eyeing 126.75 then 127.25. Downside targets include 125.25 then 124.75.

Wednesday's liquidity report showed Tuesday's use of the marginal lending facility rose to €203M from €133M prior.

Corporate issuance - Primary expected to close for the year

Looking Ahead

06:00 (UK) Dec CBI Retailing Reported Sales: 20e v 26 prior; Total Distribution: No est v 30 prior

07:00 (US) MBA Mortgage Applications w/e Dec 15th: No est v -2.3% prior

07:30 (BR) Brazil Nov Current Account: -$1.8Be v -$0.3B prior; Foreign Direct Investment (FDI): $4.3Be v $8.2B prior

08:05 (UK) Baltic Dry Bulk Index

08:30 (CA) Canada Oct Wholesale Trade Sales M/M: +0.5%e v -1.2% prior

09:00 (BE) Belgium Dec Business Confidence: 2.0e v 1.6 prior

09:00 (MX) Mexico Q3 Aggregate Supply and Demand Y/Y: 1.8%e v 2.6% prior

09:00 (MX) Mexico Oct Retail Sales M/M: -0.1%e v -0.3% prior; Y/Y: -1.0%e v -0.3% prior

10:00 (US) Nov Existing Home Sales: 5.53Me v 5.48M prior

10:30 (US) Weekly DOE Crude Oil Inventories

14:00 (AR) Argentina Q3 GDP Q/Q: No est v 0.7% prior; Y/Y: 4.3%e v 2.7% prior

16:45 (NZ) New Zealand Q3 GDP Q/Q: 0.6%e v 0.8% prior; Y/Y: 2.4%e v 2.5% prior

16:45 (NZ) New Zealand Nov Net Migration: No est v 5.6K prior

Oil price remains supported on Wednesday and ticked higher to probe above Fibo barrier at $57.79 (61.8% of $59.02/$55.81 downleg), which repeatedly capped upside attempts in previous sessions.

API crude stocks report, released on Tuesday, showed bigger than expected draw in oil stocks (5.22 mln bls vs 3.20 mln bls draw f/c), keeping oil price supported together with North Sea pipeline outage.

Today’s EIA crude inventories report is in focus, as traders expect another fall in US crude stocks (forecast for the past week is for draw of 3.76 mln bls) which would offer fresh support to oil price.

Close above $57.79 Fibo barrier will be bullish signal for extension towards $58.26 (Fibo 76.4%) and $58.54 (12 Dec high).

Rising daily Tenkan-sen ($57.31) underpins near-term action, while daily Kijun-sen (56.94) marks lower pivot, break of which will be bearish signal.

Res: 57.86, 58.26, 58.54, 58.86
Sup: 57.64, 57.31, 56.94, 56.53

Silver has been trading in a neat descending channel against the US Dollar for the past four months. The pair bounced off the lower boundary of this pattern two weeks ago and initiated a new wave up. The rate has, however, shown some reluctance to continue trading in the same steep manner, as apparent from its slight period of consolidation during the past three sessions. This might suggest that a minor pull-back could be due in the nearest time. Silver is currently testing the 55-hour SMA circa 16.13, while the 100-hour SMA and the monthly S1 are also located nearby near the 16.06 mark. By and large, the pair might even fall slightly lower or trade sideways; however, the general direction during the following weeks is expected to be towards the upper boundary of the aforementioned long-term channel located in the 16.60/80 territory.

USD/SEK had been guided by a channel down valid since November, 2016. This long-term pattern was eventually breached to the upside two months ago when a junior channel proved to be stronger. The rate has since diminished its trading range in the given pattern, thus failing to reach its lower boundary on November 27. Meanwhile, a possible surge north has been halted by the 8.52 area on several occasions. Technical indicators suggest that the US Dollar is likely to edge higher in this session. Given the strong resistance of the 100-, 55– and 200-hour SMAs and the weekly PP, any attempts to move past the 8.4520 mark should be disrupted. Subsequently, the pair could either trade sideways for some period prior to falling down or do the latter right away. A possible downside target for the following three weeks is the 8.32 area.

EURUSD

The EURUSD had a bullish momentum yesterday topped at 1.1848. The bias is bullish in nearest term but note that 1.1850 area remains a good place to sell with a tight stop loss as a clear break above that area would invalidate the bearish phase testing 1.1900 – 1.1960 region. Immediate support is seen around 1.1815. A clear break below that area could lead price to neutral zone in nearest term testing 1.1775 – 1.1750 area. Overall I remain neutral.

GBPUSD

The GBPUSD was indecisive yesterday. Price attempted to push lower bottomed at 1.3331 but closed higher at 1.3383. Once again, 1.3330 region proves itself to be a very strong support. The bias is neutral in nearest term probably with a little bullish bias testing 1.3465 region. Immediate support is seen around 1.3330. A clear break and daily close below that area could trigger further bearish pressure testing 1.3220 and trend line support area which remains a good place to buy. Overall I remain bullish.

USDJPY

The USDJPY had a bullish momentum yesterday topped at 113.07. The bias is bullish in nearest term testing 113.20 resistance area. From a different technical point of view, price might be forming a “head and shoulders” formation as you can see on my H1 chart below. Immediate support is seen around 112.50. A clear break below that area could lead price to neutral zone in nearest term testing 112.00 area. On the upside, a clear break above 113.20 would expose 113.75 area. Overall I remain neutral.

USDCHF

The USDCHF was indecisive yesterday. The bias is neutral in nearest term. I have made some adjustments to the bearish channel on the H1 chart. Immediate support is seen around 0.9818 A clear break and daily close below that area would expose 0.9780 – 0.9735 area. Immediate resistance is seen around 0.9878. A clear break above that area could trigger further bullish pressure testing 0.9910 and the upper line of the bearish channel. Overall I remain neutral.

EURJPY remains in a 3-month neutral phase but in the short-term the pair is bullish. On the 4-hour chart, the market is testing key resistance at 134 which is the top of the medium-term range. Near-term upside momentum has faded as can be seen by the RSI turning neutral.

EURJPY remains firm but if it fails to make a daily close above the key 134 level today, then the likelihood of additional gains will diminish. The market could see a pullback and remain trapped in the medium-term range in which it has been trading in since September above what is a strong base at 131.

EURJPY is expected to maintain a bullish bias in the near term since trend indicators on the 4-hour chart are bullishly aligned. The 50-period MA is above the 200-period MA, while RSI is in bullish territory above 50. However, both RSI and stochastics are in overbought levels, suggesting the recent rally off 133 is showing signs of weakness.