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NZDUSD has reversed back up again following the pullback on the 23.6% Fibonacci retracement level of the upleg from 0.6423 to 0.6968, around the 0.6835 support level. Currently, the price is testing the 20-day simple moving average (SMA) near 0.6873, which is acting as strong resistance level for the bulls. The stochastic oscillator is approaching the overbought level, while the RSI is trying to jump above the 50 level.

If the bulls continue to have control, the price could touch the 0.6910 resistance barrier, identified by the latest highs in the 4-hour chart. A potential upside violation of this region could open the way towards the six-month high of 0.6968. More upside pressures could send prices until the psychological figure of 0.7000, however, there is no significant resistance near this barrier.

In case of declines in the pair, an immediate support area may come from the 0.6815 – 0.6835 region, which stands near the 23.6% Fibonacci. If the sellers manage to push below that hurdle, that would mark a drop towards the 38.2% Fibonacci mark of 0.6760.

Overall, the short-term outlook appears bullish as the price has been creating an upward rally over the last couple of months after bottoming at 0.6423.

Sterling maintains firm tone in early Thursday's trading and pressures previous day's high at 1.2670, posted after 1.1% daily rally on Wednesday. UK PM Theresa May survived the confidence vote of her own party and will continue to lead the country on its way for the exit from the European Union. Current positive sentiment could further boost pound, however, strong concerns over disorderly Brexit, which could be very likely scenario of the end of divorce process, keep overall picture negative. PM May's Brexit plan faces strong opposition, as Wednesday's vote showed that more than a third of Conservative party lawmakers are against it, indicating that parliamentary approval of Brexit deal is not closer than before the confidence vote to PM May. Wednesday's bullish outside day is positive signal, but key barriers at 1.2675/83 (falling 10SMA / Fibo 61.8% of 1.2810/1.2476) need to be cleared to signal further recovery and expose next strong barriers at 1.2744 (falling 20SMA / Fibo 61.8% of 1.3174/1.2476). Overall picture is negative and suggest that current recovery could be seen as positioning for fresh weakness. Only sustained break above pivotal barriers at 1.2907/35 zone (Fibo 61.8% of 1.3174/1.2476 / 22 Nov high / falling 100SMA) would neutralize bears.

Res: 1.2670, 1.2683, 1.2744, 1.2810
Sup: 1.2603, 1.2591, 1.2555, 1.2476

The Euro extends recovery in early European trading on Thursday, boosted by stronger pound after PM May’s confidence vote win, positive signal from bullish engulfing pattern on Wednesday and weaker dollar.

Recovery is also supported by rising bullish momentum, but is expected to face strong headwinds from the base of falling thick daily cloud (1.1431), which capped rally on Monday.

In addition, the ECB meets today and is widely expected to keep its ultra-low interest rate unchanged, but markets fear of dovish tilt from the central bank which could put the single currency under renewed pressure.

The pair currently holds above a cluster of converged daily MA’s (10, 20, 30) at 1.1355/60 zone, with break and close below expected to weaken near-term structure.

On the other side, penetration of daily cloud and close above pivotal Fibo barrier at 1.1444 (38.2% of 1.1815/1.1215) would generate fresh bullish signal.

Res: 1.1393, 1.1414, 1.1431, 1.1444
Sup: 1.1355, 1.1343, 1.1306, 1.1267

Italy 10 year yield drops notably today on news that the coalition government offered major concession to EU regarding its budget. Italian Prime Minister Giuseppe Conte told reports after meeting European Commission President Jean-Claude Juncker that 2019 budget deficit target from 2.4% to 2.04%.

Conte emphasized that "We are not betraying the trust of Italians and we respect the commitments made with the measures which have the most impact." He added that "growth will be above our expectations" and the structural deficit will fall. Economy Minister Giovanni Tria will travel to Brussels today to guide the remaining parts of the budget talks with EU.

Italy 10 year yield is down -0.076 at 2.937 at the time of writing. It's now at the lowest level since late September.

USD is weakened against the major currencies after the ambiguous economic reports. The Consumer Price Index in November did not grow while the experts expected 0.1%. The basic Consumer Price Index remained at 0.2%. The pressure on the USD is put by the Federal Reserve deciding to increase the key interest rate next year. The investors are waiting for the final decision from Federal Reserve which should be released next week. The USD index (#DX) closed in the red (-0.35%).

GBP is rising due to the voting on confidence in Theresa May. May was supported by 200 out of 317 conservatives and overcame the Votum of No Confidence. She also claimed that will leave the post of the Prime Minister in 2022 and will spend the remaining time trying to convince the Parliament to accept the terms of the Brexit agreement.

The prices on oil are consolidating. At the moment the WTI futures are testing the 51.25 USD/barrel mark.

Market Indicators

• The prices on oil indicate the bullish mood: #SPY (+0,50%), #DIA (+0,68%), #QQQ (+0,88%).
• The 10-year yield of the US Treasury bonds keeps recovering. At the moment it is at 2.90-2.91%.

The Economic News Feed for 13.12.2018:

• Bank of Switzerland's vote on the key interest rate – 10:30 (GMT+2:00);
• ECB vote on the key interest rate – 14:45 (GMT+2:00).

• Sterling advances as PM May survives leadership contest, but sustained rally unlikely
• ECB meets today; Draghi’s tone will be crucial for the euro
• SNB meets as well, likely to maintain a dovish stance
• Meanwhile, reports China may open its economy boost risk sentiment

Pound soars as May survives, but odds of a sustained rally slim

Sterling surged on Wednesday, as it became increasingly clear throughout the session that PM May would survive the no-confidence motion, amid a plethora of Tory lawmakers publicly stating their support for her. Hence, investors “bought the rumor”, and sure enough, May won the confidence vote of the Conservative Party by 200 – 117. The pound interestingly pulled back on the news, partly due to traders locking in profits and “selling the fact”, and partly because the margin of her victory wasn’t impressive.

Indeed, one has to question whether the surge in the pound was justified, as looking past the triumphant headlines, the Brexit process remains in exactly the same uncertain stage as it was two days ago. If anything, considering that more than a third of her party is against her, one has difficulty envisioning a scenario under which the PM manages to command a majority in Parliament to push her deal through, even if the EU does grant backstop assurances. The bottom line is that any rallies in sterling may remain relatively short-lived as uncertainty is set to stay elevated. Today, all eyes will be on the EU summit, which may reveal what kind of guarantees Europe is willing to grant.

Euro firms as Italy de-escalates; ECB meeting in focus

The single currency advanced yesterday, alongside sterling, and following news that Italy presented the EU with a revised budget that lowers the controversial deficit to 2.0%, in an attempt to appease Brussels and de-escalate the situation.

Today, the main event will be the ECB meeting, where the Bank is set to officially end its QE program. Although Eurozone growth indicators have disappointed lately, policymakers have made it clear they have no intention of extending QE. Instead, markets will scrutinize the Bank’s economic forecasts, the assessment of risks, and President Draghi’s press conference, for any signals on whether the ECB is turning more cautious. In other words, does the Bank view the loss of growth momentum as owed to temporary factors that will dissipate soon (euro-positive), or is it starting to worry this may be a prolonged slowdown (euro-negative)?

It’s a close call, but the risks may be tilted towards a slightly upbeat tone from Draghi that allows the ECB to end QE on an optimistic note. He may reiterate the Bank remains committed to its normalization plans, and perhaps downplay the clouded inflation outlook by pointing to strength in wage growth, in essence postponing any potential dovish shift for a later meeting (for more: ECB preview).

SNB meets as well, but no “hawkish bits” yet

The other key event today will be the SNB’s own policy meeting, where the Bank is widely expected to keep its policy rates at record lows. Considering that the Swiss economy contracted in Q3, core inflation rests at a mere 0.2% in yearly terms, and the franc has strengthened lately on the back of global uncertainties, policymakers are unlikely to provide any hawkish signals. Instead, they may reiterate the franc remains “highly valued”, the Bank will continue to intervene in the FX market, and negative rates are still a necessity. Such a dovish tone would argue for a weaker franc over time, absent an escalation of global risks that triggers a “flight to safety”.

Stocks advance, dollar falters as trade reports reinvigorate optimism

Risk sentiment was lifted yesterday by a WSJ report that China is considering delaying its “made in China 2025” plan and increasing access for foreign firms operating in the country. US markets closed somewhat higher, while defensive currencies like the yen and the dollar pulled back. Although this is encouraging, as it shows determination to defuse tensions, the market reaction was lukewarm. Perhaps investors remain skeptical of whether such changes will be material, or merely aesthetic, aimed at striking a short-term deal to buy time and “weather out” the Trump presidency, rather than radically reforming the Chinese economy.

Other highlights today

In Norway, the Norges Bank will also announce its monetary policy decision.

European Union Budget Commissioner Guenther Oettinger reiterated the commission's stance on Brexit negotiation. That is, " final clarification yes, but further negotiations no". Oettinger went further and emphasized that there won't be a time limit for the backstop solution on Irish border. He added "that doesn't work. We need to have clear rules for people, products and goods at the border of Ireland, Northern Ireland, Belfast and Dublin."

Separately, it's reported the EU is ready to provide further assurance regarding the backstop. Reuters reported after seeing a six-point document for today's summit. The assurance would include that "The European Council underlines that the backstop does not represent a desirable outcome for the Union. The backstop is only intended as an insurance policy ... It is the Union's firm determination to work speedily on a subsequent agreement."

And even if triggered EU would say the backstop would "apply only temporarily unless and until it is superseded by a subsequent agreement." EU would also commit to "best endeavours" to agree on a new EU-UK deal if the backstop is triggered "so that it would only be in place for a short period and only as long as strictly necessary."

Pivot (invalidation): 1.1350

Our preference Long positions above 1.1350 with targets at 1.1380 & 1.1400 in extension.

Alternative scenario Below 1.1350 look for further downside with 1.1325 & 1.1305 as targets.

Comment Technically the RSI is above its neutrality area at 50.

Pivot (invalidation): 1.2585

Our preference Long positions above 1.2585 with targets at 1.2675 & 1.2720 in extension.

Alternative scenario Below 1.2585 look for further downside with 1.2550 & 1.2520 as targets.

Comment A support base at 1.2585 has formed and has allowed for a temporary stabilisation.

Pivot (invalidation): 113.15

Our preference Long positions above 113.15 with targets at 113.70 & 113.85 in extension.

Alternative scenario Below 113.15 look for further downside with 113.00 & 112.85 as targets.

Comment The RSI calls for a new upleg.