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The U.S. House of Representatives passed the tax reform legislation yesterday. But the market reaction was broadly muted. Another round of voting is expected to take place today following which the tax cut plans would be cleared. Economic data continued to remain soft. The U.S. department of commerce showed that housing starts increased 3.3% on the month in November to 1.29 million units. It was the highest level in 13 months.

Crude oil prices continued to remain trading flat but near recent highs on the outage due to the North Sea pipeline. Reports also showed that Rosneft, Russia's oil firm was expecting to cut production beyond 2018. Crude oil futures rose 0.5% higher on the day to settle at $57.46.

Looking ahead, the economic calendar today will see the German PPI data coming out. The BoE Governor, Mark Carney will be speaking while later in the day, the U.S. existing home sales data will be coming out. New Zealand will be reporting on its third quarter GDP numbers today.

GBP/USD - 1.3393

Most recent candlesticks pattern   : N/A

Trend                                 : Sideways

Tenkan-Sen level                 : 1.3390

Kijun-Sen level                    : 1.3367

Ichimoku cloud top              : 1.3376

Ichimoku cloud bottom        : 1.3374

Original strategy :

Sold at 1.3390, Target: 1.3290, Stop: 1.3405

Position : - Short at 1.3390

Target :  - 1.3290

Stop : - 1.3405

New strategy  :

Hold short entered at 1.3390, Target: 1.3290, Stop: 1.3405

Position : - Short at 1.3390

Target :  - 1.3290

Stop : - 1.3405

As the British pound has rebounded again after finding support at 1.3331 yesterday, as long as 1.3403-05 holds, prospect of another decline remains, below said support would signal the rebound from 1.3302 has ended at 1.3418, bring retest of this level, break there would extend recent decline from 1.3550 top to 1.3280, then towards 1.3250, however, still reckon previous support at 1.3221 would remain intact.

In view of this, we are holding on to our short position entered at 1.3390. Only above 1.3420-25 would defer and risk rebound to 1.3445-50 but said resistance at 1.3466 should remain intact and bring another decline later. 

EUR/USD - 1.1844

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 1.1839

Kijun-Sen level                  : 1.1820

Ichimoku cloud top             : 1.1792

Ichimoku cloud bottom      : 1.1786

New strategy  :

Stand aside

Position : -

Target :  -

Stop : -

As the single currency has maintained a firm undertone and near term upside risk remains for a test of previous resistance at 1.1864, however, break there is needed to retain bullishness and signal another leg of the rise from 1.1717 is underway and extend further subsequent gain to 1.1880, then 1.1900 but price should falter well below resistance at 1.1940, risk from there is seen for a retreat later due to near term overbought condition.

In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below 1.1800 would bring test of 1.1775 support but only break there would suggest top is formed instead, then further choppy trading would take place and weakness to 1.1750 would follow but support at 1.1737 should remain intact.

USD/JPY - 113.15

Most recent candlesticks pattern   : N/A

Trend                      : Near term down

Tenkan-Sen level              : 113.01

Kijun-Sen level                  : 112.84

Ichimoku cloud top             : 112.56

Ichimoku cloud bottom      : 112.43

Original strategy  :

Exit long entered at 112.60,

Position :  - Long at 112.60

Target :  -

Stop : -

New strategy  :

Buy at 112.80, Target: 113.70, Stop: 112.45

Position :  -

Target :  -

Stop : -

As the greenback has continued trading with a firm undertone, adding credence to our bullish view that the rise from 112.03 low is still in progress and may extend further gain to 113.40, then towards resistance at 113.75, however, break there is needed to retain bullishness and signal the rise from 110.84 low has resumed for headway towards 113.95-00 first.

In view of this, we are looking to buy dollar on pullback as 112.75-80 should limit downside and bring another rise later. Below 112.50-55 would suggest top is formed, bring test of 112.31 support but only break of latter level would signal the rebound from 112.03 has ended instead, bring retest of this level later.

AUDUSD has been neutral since late October and has been capped by the 200-day moving average and supported at the key 0.7500 level. The medium-term downtrend from the 0.8124 peak on September 8 remains in progress and has not shown any signs of reversal. The crossover of the 50-day MA below the 200-day MA is a bearish signal.

The stochastic oscillator reached above 80 indicating the market became overbought after the sharp rally from 0.7500 on December 11 to 0.7694 on December 15. Consequently, AUDUSD entered a consolidation phase, as indicated by the RSI which is now neutral.

The short-term outlook has improved since the rebound off 0.7500 took place. But there would need to be a strong impetus to breach the resistance at the 200-day MA (0.7694). A successful break of this barrier would open the way towards the key 0.7900 handle and then target 0.8000. Rising above this critical level would confirm the shift to a bullish trend.

For now, the likelihood of extending higher is fading since the market is overbought. AUDUSD is expected to remain neutral for now with strong support at 0.7500.

The euro currency continues to drive higher against the U.S dollar, with price-action so far reaching 1.1849 in early Wednesday trading. The EURUSD pair has looked past the U.S Senate passing the Trump administration Tax Reform Bill overnight. Strong technical buying was seen in the euro, after the pair broke above the key 1.1813 resistance level, further boosting buying interest. Traders now look to German PPI inflation figures, and Existing Home Sales data from the United States economy.

The EURUSD pair remains strongly bullish while price-action trades above the 1.1813 technical level. Buyers may look now look to target the 1.1860 and 1.1890 resistance zones.

Should the EURUSD pair start to move below the 1.1813 support level, further declines may be seen toward the 1.1787 and 1.1770 levels.

The U.S dollar has recovered upside momentum against the Japanese yen, with the pair pressing towards the key 113.10 resistance level. The USDJPY pair has received a boost from rising global stocks markets, and the U.S House Senate passing the Trump administration Tax Reform Bill into law. A clear technical break above the 112.70 level on Tuesday, also helped to encourage overall buying in the pair. USDJPY traders now look to the release of U.S Existing Home Sales, and the Bank of Japan’s monetary policy decision in the early hours of Thursday morning.

The USDJPY pair remains bullish while trading above the 112.70 level, if price-action moves above the 113.10 level, buyers are likely to target the 113.70 resistance level.

Should price-action turn below the 112.70 level, the sentiment towards the USDJPY will likely turn bearish. Sellers may then push the pair towards the 112.30 and 112.02 levels.

Wednesday is expected to be another light day on the economic calendar, as a dearth of high-profile data keeps investors fixated on monetary policy.

Bank of England (BOE) Governor Mark Carney headlines the release schedule with a speech at 13:15 GMT. The Bank raised interest rates last month for the first time in over a decade in response to counteract the sharp rise in inflation. Policymakers have been keeping a close eye on the consumer price index (CPI) in the wake of Brexit. Following the November rate hike, the benchmark interest rate now stands at 0.5%, where it was before the EU referendum in June 2016.

It has been a big month for monetary policy after the US Federal Reserve raised interest rates for the third time this year. In doing so, the Fed maintained its outlook on three more rate increases in 2018. The Fed’s decision to lift rates was probably the last under the leadership of Chairwoman Janet Yellen. She will be replaced early next year by Jerome Powell.

In terms of economic data, the German government will report on producer inflation at 07:00 GMT. The producer price index (PPI) is forecast to rise 0.2% in November, following a 0.3% increase the month before. That translates into a year-over-year gain of 2.6%.

Two hours later, the European Central Bank (ECB) will report on regional current account balances. The euro-wide current account surplus stood at €37.8 billion in September, in seasonally adjusted terms. That figure is expected to drop to €33.4 billion in October.

Later in the morning, the Confederation of British Industry (CBI) will report the trades survey for the month of December.

Shifting gears to North America, the Canadian government will release its monthly wholesale sales report at 13:30 GMT. The monthly indicator is expected to show growth of 0.5%, partially offsetting the 1.2% drop in October.

The National Association of Realtors (NAR) will headline the US release schedule with its monthly report on existing home sales. The sale of previously-owned homes is forecast to rise 1% to a seasonally adjusted 5.52 million in November.

GBP/USD

The British pound has stabilized below 1.3400 US, although recent movements in the dollar suggests a rebound may be in store. The GBP/USD has established a solid line of support around 1.3330.

EUR/USD

Europe’s common currency has rebounded sharply this week. After bottoming in the mid-1.17 region on Monday, the EUR/USD has gained more than 100 pips. It currently sits right around 1.1845.

USD/JPY

The USD/JPY is experiencing a relatively uneventful session, as the pair continues its long climb back toward 113.00. Current price action is just below that level, although analysts warn this pair could be rangebound for the foreseeable future.

Market movers today

The main event today is the Riksbank's monetary policy announcement in Sweden. There is a great deal of uncertainty related to this meeting as we're set to get information about the the asset purchase programme (QE) going forward. Purchases started in February 2015 and by now the total holding of nominal bonds is around 45% of the stock (less in IL-bonds). In the meantime, inflation has risen and the scarcity of bonds has increased too. This is why we expect them to announce an end to QE, even though we admit it is a very close call. However, even so, purchases are unlikely to come to a standstill because of reinvestments and redemptions. We also expect the Riksbank's rate path to remain unchanged, i.e. with the first rate hikes by late next summer. However, the ‘risk' is that the first hike is delayed to avoid sending an unwarranted hawkish signal. Furthermore, in Sweden, the monthly NIER business and consumer confidence data is due. The thing to monitor here is if and to what extent recent nervousness about housing has affected consumers.

In the early hours of Thursday morning, the Bank of Japan (BoJ) will end its monetary policy meeting. We expect the BoJ to keep it s ‘QQE with yield curve control' policy unchanged but we will be listening closely to the communication from Governor Haruhiko Kuroda during the press conference, as he might elaborate on recent tightening speculation.

Selected market news

It has been quiet overnight as market focus remains on the out look for US tax reform amid the two chambers of Congress set to pass the bill. Yesterday evening European time, the House of Representatives initially passed the bill with a 227 to 203 vote, with 12 Republicans and all Democrats voting against . However, according to House Majority Leader Kevin McCarthy, the House will have to vote on the bill again today as the draft voted on did not survive two provisions of Senate budget rules. The Senate is also set to vote on the bill today and at this stage it seems very likely that we will get the biggest overhaul of the US federal tax code in decades – a victory deemed very important for Republican chances of retaining control of Congress at next year's mid-term elections. In terms of the actual growth impact, we think the effect will prove limited as the tax reform primarily benefits the wealthiest who have a lower marginal propensity to consume and as the out look for investment boost is dampened by the fact that credit has been cheap and easy in recent years. The risk to our call is that investments will rise more than expected as the demand for investments could see a boost .

We have witnessed a concerning worsening of the US-China relationship. Following a muchcelebrated visit to China by US President Donald Trump in early November, the US-China relationship has gone steeply downhill. Following a series of events from mid-November to now, Trump on Monday night stated that China and Russia are at tempting to erode American security and prosperity and that they are developing weapons that could threaten US critical infrastructure (see Flash Comment – US-China relations on a concerning path, 19 December). Following a period where imminent risk factors that could derail the global recovery were difficult to pinpoint, we now emphasise a heightened risk of trade conflict next year. Adding to fears is that Trump, going into the mid-term elect ions, seems to have wide backing at home for his confrontational course with China. Should the Republican lose its majority in the Senate or the House, it would also leave Trump with power only in the areas of foreign policy and trade.

Daily Pivots: (S1) 0.7644; (P) 0.7663; (R1) 0.7681; More...

Intraday bias in AUD/USD remains neutral at this point. Price actions from 0.7500 are viewed as a corrective pattern. Upside should be limited by 0.7732 cluster resistance (38.2% retracement of 0.8124 to 0.7500 at 0.7738). On the downside, below 0.7604 minor support will bring rest of 0.7500. Break will resume whole fall from 0.8124. However, sustained break of 0.7732 should invalidate our bearish view and bring stronger rise through 61.8% retracement at 0.7886.

In the bigger picture, corrective rise from 0.6826 medium term bottom is likely completed at 0.8124, after hitting 55 month EMA (now at 0.8034). Decisive break of 0.7328 key cluster support (61.8% retracement 0.6826 to 0.8124 at 0.7322) will confirm. And in that case, long term down trend from 1.1079 (2011 high) will likely be resuming. Break of 0.6826 will target 61.8% projection of 1.1079 to 0.6826 from 0.8124 at 0.5496. This will now be the favored case as long as 0.7732 near term resistance holds.