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Canadian Foreign Minister Chrystia Freeland warned the US (not China) not to politicize the arrest and extradition of Huawei top executive Meng Wanzhou. Trump said on Tuesday that he could intervene in the case if it's good for trade negotiation with China. When asked about Trump's comments, Freeland said "our extradition partners should not seek to politicize the extradition process or use it for ends other than the pursuit of justice and following the rule of law".

Separately, Chinese state-owned hawkish media Global Times urged Canada to "distance itself from US hegemonism and fulfill its obligations to help maintain international order and protect human rights". And the media also warned that "Washington is mistaken if it thinks it can take Meng hostage and ransom her for concessions in the upcoming trade talks."

Sterling softens mildly in Asia after UK Prime Minister Theresa May survived the leadership challenge. 200 Conservative MPs voted in support for May in the no-confidence vote. 117 voted against her. That's way more than enough to secure her place as Prime Minister. But it's still alarming than more than a third of the MPs of her party wanted her out. May herself also admitted that "a significant number of colleagues did cast a vote against me and I've listened to what they said". But she added it's time to "get on with the job of delivering Brexit for the British people".

May will go to Brussels for the two day EU summit today. But she's only given 10 mins to tell EU leaders what she needs to get the Brexit agreement through parliament. EU's stance is very clear that the agreement itself is not renegotiable. But they're open to offer "assurances" regarding the Irish border backstop, and others. The results of the summit could continue to trigger volatility in the pound.

Despite yesterday's rebound, Sterling remains near term bearish. 1.2811 resistance in GBP/USD 144.02 resistance in GBP/JPY and 0.8931 support in EUR/GBP need to be taken out to confirm short term bottoming. Otherwise, more selloff is still in favor in the Pound.

Key Highlights

• The Euro rallied recently and traded above the 0.8900 and 0.9000 resistances against the British Pound.
• There is a crucial bullish trend line formed with support at 0.8960 on the 4-hours chart of EUR/GBP.
• The US CPI in Nov 2018 increased 2.2% (YoY), similar to the forecast, but less than the last 2.5%.
• Today, the ECB Interest Rate Decision is lined up and the central back is expected to make no change in rates.

EURGBP Technical Analysis

The Euro gained pace in the past few days and rallied after forming support near 0.8880 against the British Pound. The EUR/GBP pair traded above the 0.8900 and 0.9000 resistance levels.

Looking at the 4-hours chart, the pair even traded above the 0.9050 level and it is currently trading well above the 100 simple moving average (red, 4-hours). A new monthly high was formed at 0.9087 before the pair started a downside correction.

It corrected below the 23.6% Fib retracement level of the recent wave from the 0.8886 low to 0.9087 high. However, there are many important supports on the downside near the 0.8980 and 0.8940 levels.

There is also a crucial bullish trend line formed with support at 0.8960. An intermediate support is near the 50% Fib retracement level of the recent wave from the 0.8886 low to 0.9087 high.

Therefore, if the pair corrects lower from the current levels, it is likely to find support near the 0.8980 or 0.8940 level. On the upside, an initial resistance is at 0.9060, above which the pair may climb above 0.9100.

Fundamentally, the US Consumer Price Index for Nov 2018 was released by the US Bureau of Labor Statistics. The market was looking for a 2.2% rise in Nov 2018 compared with the same month a year ago.

The result was similar, but it was less than the last 2.5% increase. The monthly change was flat, whereas there was a 0.3% rise in the previous month. The report added that:

The gasoline index declined 4.2 percent in November, offsetting increases in an array of indexes including shelter and used cars and trucks. Other major energy component indexes were mixed, with the index for fuel oil falling but the indexes for electricity and natural gas rising. The food index rose in November, with the indexes for food at home and food away from home both increasing.

Pairs like EUR/USD and GBP/USD recovered after the release, but both are still trading below key resistance levels.

Economic Releases to Watch Today

• German Consumer Price Index for Nov 2018 (YoY) – Forecast +2.3%, versus +2.3% previous.
• German Consumer Price Index for Nov 2018 (MoM) – Forecast +0.1%, versus +0.1% previous.
• ECB Interest Rate Decision – Forecast 0%, versus 0% previous.
• US Initial Jobless Claims – Forecast 225K, versus 231K previous.

US markets

It was another volatile day for stocks, but markets remain buffeted by positive signs on U.S.-China trade. But its far to early to get overly optimistic about a quick end to these tensions. But as per the US administration modus operandi to give a little then pull back, both Commerce Secretary Ross and Treasury Undersecretary Malpass asked China for hard deadlines. So we expected a bit of a mixed start to the Asia session.

Brexit

UK PM May's no-confidence vote was firmly centre stage Wednesday. PM May has survived a Conservative Party confidence vote and lives to fight another day, actually another 12 months as per Tory party rules. But make no mistake, this was a narrow victory suggesting a deal is less likely as the results skew the probability distribution further against a Brexit agreement. The 117 dissent votes coupled with the DUP and the opposition, add up to a clear majority against May's deal and if her deal fails in Parliament eventually, a no-confidence motion in Parliament remains probable outcome. Indeed, another treacherous Brexit climb lies ahead which will leave the Pound extremely vulnerable to headline risk even more so since the Pound rallied with investors expecting May to win and strengthen her mandate, not sure if that is the actual outcome given her slimmer margin of confidence than expected.

Fortunately, no PM May' hem but unfortunately no Brexit catharsis either.

Oil markets

The DOE data for the week ended December 7 painted a completely differing picture for Tuesday's American Petroleum Institute hefty drawdown which supported the oil market yesterday., The Energy Information Administration reported early Wednesday that U.S. crude supplies fell by 1.2 million barrels for the week ended December 7 short of analyst's expectations

And while OPEC is well on their way to balancing global oil markets, but OPEC forecast is not offering up a particularly favourable landscape oil market next year as recent estimates suggest global demand will be 31.4m barrels a day of the cartel's crude next year, 2.1m b/d less than demand from 2017, but production for outside of OPEC. Primarily driven by shale drillers where the output is set to soar to 2.16 million barrels a day versus 1.28 million per day.

And while the US markets have pulled back from energy dependence after shifting to a brief net exporter of oil, US oil is set to move firmly into a net export mode in 2019

All of which suggests OPEC need to come up with a thicker supply cut down the road given that product as Crude oil production from the world's three largest producers—US, Russia, and Saudi Arabia—were at or near record levels in November

Also, US Energy Information Administration has revised its 2019 price forecasts for Brent and West Texas Intermediate to $61/bbl. And $54/bbl., respectively, which are both $11/bbl. lower

Currency Markets

GBP: The pound looks precariously preached as Thresa May is probably set to embark on more whistle-stop tours to build support for her Brexit vision, which means more headline risk the Brexit Sisyphus team gets set to push another boulder up the mountain, with predictable results.

EUR: The ECB has been relatively candid in guiding the market's expectations for the upcoming meeting. We expect guidance on interest rates to remain unchanged in the initial press release. The main focus will be on the APP. But with the market anticipating an end APP, anything other will be interpreted as extreme dovish with a predictable result for the EUR

Gold has posted slight gains in the Wednesday session. In North American trade, the spot price for one ounce of gold is $1245.29, up 0.19% on the day. In economic news, consumer inflation reports softened in November, but matched the estimates. CPI dipped to 0.0 percent and Core CPI fell to 0.2 percent. On Thursday, the U.S releases unemployment claims.

The markets have become used to the Federal Reserve’s “gradual rate hike” policy, but that is likely to change next year. Only a few months ago, there was talk that the Federal Reserve could hike rates up to four times in 2019. However, signs of a slowdown in the U.S. economy have drastically changed matters, as the Fed is expected to scale back its rate increases, with many analysts predicting just one rate hike next year. Three rate hikes so far this year are starting to cool the red-hot U.S. economy. This trend is apparent from lower GDP readings and a dismal nonfarm payrolls report for November. Still, the Fed is widely expected to raise rates at the policy meeting on December 19, with the CME pegging the likelihood of a rate hike at 80%. The steady diet of rate hikes has also helped support the U.S dollar against other major currencies and gold. Since the start of the year, gold prices have fallen 4.5 percent, even with the global trade war and other geopolitical hotspots which

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Sterling is without a doubt a star today. The triggering of the no-confidence of vote on UK PM Theresa May turns out to be a blessing for her, as well as the pound. More and more MPs turn out to support May as the ballot at 1800-2000 GMT approaches. And we tend to agree with Environment Secretary Michael Gove that May would win the leadership challenge "handsomely". That will give her a strong position to go to EU summit tomorrow, to get the "assurances" she need to push the Brexit agreement through the Commons. We'll see how it goes in a few hours, but things are looking positive.

For now, GBP/NZD is the biggest mover today, a loser this time, as NZD's rebound also lost steam. It turns out that 61.8% retracement of 1.6684 to 2.0469 at 1.8130 is a rather tough support level to beat, opposite to what we've expected here. It's a bit early to declare, but considering that daily MACD is turning up, fall from 2.0469 should have at least made a short term bottom at 1.8125.

We'd now expect stronger rebound to 1.8634. Firm break there will confirm this case and bring further rise to 38.2% retracement of 2.0469 to 1.8125 at 1.9020. Reaction from 1.9020 will reveal how deep the fall from 2.0469 would develop into.

Daily Pivots: (S1) 0.9023; (P) 0.9047; (R1) 0.9089; More...

A temporary top is in place at 0.9086 with today's deep retreat. Intraday bias in EUR/GBP is turned neutral first. As long as 0.8931 resistance turned support holds, another rally is still in favor. On the upside, decisive break of 0.9098 resistance will extend the rise from 0.8655 to 0.9304 key resistance next. However, considering bearish divergence condition in 4 hour MACD, firm break of 0.8931 will indicate near term reversal and target 0.8810 support and below.

In the bigger picture, EUR/GBP is seen as staying in long term range pattern started at 0.9304 (2016 high). Sustained break of 0.8939 resistance will confirm that it's in a medium term rising leg for 0.9098 and above. And for now, in case of another fall, downside will likely be contained by 0.8620/55 support zone to bring rebound.

Daily Pivots: (S1) 141.10; (P) 142.01; (R1) 142.50; More...

GBP/JPY's strong recovery today indicates temporary bottoming at 141.17. Intraday bias is turned neutral first. As long as 144.02 support turned resistance holds, another decline remains mildly in favor. Below 141.17 will target 139.29/47 key support zone. However, considering bullish convergence condition in 4 hour MACD, decisive break of 144.02 will suggest near term reversal. Stronger rally should then be seen to 55 day EMA (now at 145.04) and above.

In the bigger picture, as long as 139.29 cluster support (50% retracement of 122.36 to 156.59 at 139.47) holds, up trend from 122.36 (2016 low) could still extend beyond 156.69 high. However, decisive break of 139.29/47 will suggest that such up trend is completed and turn outlook bearish. In that case, next target is 61.8% retracement at 135.43.

Reuters reported that EU is preparing to offer UK some assurances that can help get the Brexit agreement through the Parliament. An unnamed official was quoted saying "I cannot tell you what sort of re-assurance leaders will give to Prime Minister May. What is not feasible is the re-negotiation of the withdrawal agreement, everything else is possible. Whatever assurances can be given, cannot contradict the deal".

The ideas will likely be discussed at the EU summit on Thursday and Friday, after May is given a chance to explain her concerns.