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The British pound is once again testing demand above the 1.2600 level against the US dollar after British Prime Minister Theresa May won yesterday’s Conservative party leadership challenge. The GBPUSD pair remains bearish while trading below the 1.2657 level and is still vulnerable to losses below the 1.2500 level. The GBPUSD pair is likely to take direction from the outcome of the European Central Bank policy meeting.

The GBPUSD pair is only intraday bullish while trading above the 1.2657 level, key technical resistance is found at the 1.2700 and 1.2730 levels.

If the GBPUSD pair trades below the 1.2600 level, key technical support is found at the 1.2550 and 1.2480 levels.

Daily Pivots: (S1) 0.9882; (P) 0.9911; (R1) 0.9959; More...

Intraday bias in USD/CHF remains neutral for the moment. On the upside, break of 1.0008 resistance will indicate that pull back from 1.0128 has completed. Intraday bias would be turned back to the upside for retesting 1.0128 first. On the downside, below 0.9862 will target 0.9848 support first. Sustained break there will confirm near term reversal and target 61.8% retracement of 0.9541 to 1.0128 at 0.9765 and below.

In the bigger picture, rise from 0.9541 could have topped at 1.0128. But as long as 0.9541 support holds, we'd still expect rise from 0.9186 to resume at a later stage. Break of 1.0128 will target 1.0342 key resistance. However, break of 0.9514 will pave the way back to 0.9186 low.

Daily Pivots: (S1) 113.10; (P) 113.31; (R1) 113.48; More..

Further rise is still expected in USD/JPY with 113.00 minor support intact. Break of 113.04 resistance will resume rebound from 111.37 and target 114.54 key resistance next. On the downside, below 113.00 will turn bias the downside for 112.23 and below. Overall, price actions 114.54 are seen as a consolidative pattern. In case of deeper fall, downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound. Larger rise from 104.62 is expected to resume later.

In the bigger picture, corrective fall from 118.65 (2016 high) should have completed with three waves down to 104.62. Decisive break of 114.73 resistance will likely resume whole rally from 98.97 (2016 low) to 100% projection of 98.97 to 118.65 from 104.62 at 124.30, which is reasonably close to 125.85 (2015 high). This will stay as the preferred case as long as 109.76 support holds. However, decisive break of 109.76 will dampen this bullish view and turns outlook mixed again.

Daily Pivots: (S1) 0.7199; (P) 0.7219; (R1) 0.7239; More...

Intraday bias in AUD/USD remains neutral and another decline is mildly in favor with 0.7259 minor resistance intact. Decisive break of 1.7199 support will suggest that the corrective rebound from 0.7020 has completed earlier than expected. Deeper fall should then be seen back to retest 0.7020 low. On the upside, above 0.7259 minor resistance will turn bias back to the upside. In that case, corrective rise from 0.7020 would extend to 38.2% retracement of 0.8135 to 0.7020 at 0.7446 before completion.

In the bigger picture, a medium term bottom is in place at 0.7020 ahead of 0.6826 key support (2016 low). Stronger rebound might be seen to correct the whole fall from 0.8135 high. But we'd expect strong resistance from 0.7500 support turned resistance to limit upside. Medium term fall from 0.8135 should resume and extend to take on 0.6826 low at a later stage, after the correction from 0.7020 completes.

Daily Pivots: (S1) 1.3316; (P) 1.3358; (R1) 1.3393; More...

Intraday bias in USD/CAD remains neutral at this point. Consolidation from 1.3444 is still in progress and could extend further. But after all, near term outlook remains bullish as long as 1.3160 support holds, and further rise is expected. On the upside, break of 1.3444 will turn bias back to the upside. Larger rally from 1.2061 should target 1.3685 fibonacci level next.

In the bigger picture, up trend from 1.2061 (2017 low) is still in progress and should target to 61.8% retracement of 1.4689 (2016 high) to 1.2061 at 1.3685. This will remain the preferred case as long as channel support (now at 1.2949) holds.

Market movers today

Today is a very busy day. At 10:00 CET, we expect Norges Bank to stay on hold but to confirm plans to tighten monetary policy in March. That said, the interest rate path in the monetary policy report can be expected to be somewhat more cautious than in September.

At 13:45 CET, we expect the ECB to formally end the QE programme. While this is (on paper) a hawkish policy move, we expect a dovish tightening as confirmation and reassurance of an accommodative monetary policy stance going forward. We expect no new guidance on a first rate hike. The press conference begins at 14:30 CET where we expect Draghi will try to be as 'dull' as possible. See ECB Preview: A new chapter of dovish tightening, 7 December.

The EU summit will begin today with Brexit on the agenda. While the EU27 has said they will not renegotiate the Withdrawal Agreement (including the backstop), they have indicated they will discuss how to help give UK PM Theresa May further assurance that it is not in the EU's interest to keep the UK 'trapped' in the backstop solution indefinitely. The question is whether such an assurance is enough to calm UK politicians so they will support the deal when put forward in the House of Commons.

US initial jobless claims due out 14:30 CET will be interesting. Initial jobless claims have risen steadily from the bottom at 202,000 in September to 231,000 the last time. While still low, an increase may add fuel to concerns the US economy is slowing.

Swedish Prospera's inflation expectations survey is due out at 08:00 CET and unemployment data is due out at 09:30 CET.

Selected market news

Equity markets moved higher yesterday on renewed optimism on US-China trade talks. The positive sentiment continued in Asia with Chinese equities up close to 2% and US bond yields higher. News broke yesterday that China may delay its 'Made in China 2025' strategy by a decade and replace it with a programme that promises greater access for foreign companies. China also made its first major soybean purchase from the US, delivering on the promise in the ceasefire agreement that China would immediately start buying US farm products. We see it as further confirmation that the two sides are very committed to reaching a trade deal this time, although the ceasefire deadline of 1 March could be extended into Q2 if needed.

UK Prime Minister Theresa May survived a confidence vote last night. However, it is really difficult to see where the Brexit saga will end. With this result, it has probably become more difficult for May to get her deal through parliament even if she gets more assurance from EU leaders. It is still our baseline scenario that a Brexit deal passes the vote in parliament, most likely in January. But uncertainty will remain high in the short term.

For the 24 hours to 23:00 GMT, the EUR rose 0.49% against the USD and closed at 1.1376.

Macroeconomic data revealed that the Euro-zone's seasonally adjusted industrial production rebounded 0.2% on a monthly basis in October, in line with market expectations. In the previous month, industrial production had registered a revised drop of 0.6%.

The US dollar declined against its major peers yesterday, after the US inflation data indicated that the Federal Reserve will slow its pace of rate hikes in 2019.

In the US, data showed that the US consumer price index (CPI) rose 2.2% on an annual basis in November, meeting market expectations. In the previous month, the CPI had recorded a rise of 2.5%. Moreover, the nation's mortgage applications climbed 1.6% on a weekly basis in the week ended 07 December 2018, following an advance of 2.0% in the previous week.

In the Asian session, at GMT0400, the pair is trading at 1.1368, with the EUR trading 0.07% lower against the USD from yesterday's close.

The pair is expected to find support at 1.1326, and a fall through could take it to the next support level of 1.1285. The pair is expected to find its first resistance at 1.1398, and a rise through could take it to the next resistance level of 1.1429.

Going forward, traders would await the European Central Bank's interest rate decision along with Germany's consumer price index for November, slated to release in a few hours. Later in the day, the US initial jobless claims will keep investors on their toes.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the GBP rose 1.19% against the USD and closed at 1.2639, after British Prime Minister, Theresa May survived the Brexit related no-confidence vote over her leadership.

In the Asian session, at GMT0400, the pair is trading at 1.2615, with the GBP trading 0.19% lower against the USD from yesterday’s close.

Data showed that in the UK, the RICS house price balance unexpectedly fell to a level of -11.0% in November. In the prior month, the house price balance had registered a revised reading of -10.0%.

The pair is expected to find support at 1.2505, and a fall through could take it to the next support level of 1.2394. The pair is expected to find its first resistance at 1.2699, and a rise through could take it to the next resistance level of 1.2782.

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

For the 24 hours to 23:00 GMT, the USD declined 0.15% against the JPY and closed at 113.24.

In the Asian session, at GMT0400, the pair is trading at 113.44, with the USD trading 0.18% higher against the JPY from yesterday’s close.

The pair is expected to find support at 113.21, and a fall through could take it to the next support level of 112.99. The pair is expected to find its first resistance at 113.59, and a rise through could take it to the next resistance level of 113.75.

The currency pair is trading above its 20 Hr and 50 Hr moving averages.

For the 24 hours to 23:00 GMT, the USD slightly declined against the CHF and closed at 0.9929.

In the Asian session, at GMT0400, the pair is trading at 0.9939, with the USD trading 0.10% higher against the CHF from yesterday’s close.

The pair is expected to find support at 0.9913, and a fall through could take it to the next support level of 0.9886. The pair is expected to find its first resistance at 0.9966, and a rise through could take it to the next resistance level of 0.9992.

Moving ahead, traders would keep an eye on the Swiss National Bank’s interest rate decision followed by the producer & import prices for November, set to release in a few hours.

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