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The price action in early Wednesday's trading is holding within narrow consolidation just above pivotal 200WMA (1.1312) which was cracked on Tuesday's dip to 1.1306. Two consecutive bearish daily candles (Mon/Tue) with long upper shadows signal that the upside remains protected and turned near-term bias to bearish mode. Strong bearish momentum on daily chart and Tuesday's close below converged 10;20;30 SMA's (1.1360 zone) maintain bearish pressure, along with falling thick daily cloud and Monday's bull trap pattern, formed after strong upside rejection. Bears look for break through pivotal supports at 1.1312/08 (200WMA/Fibo 76.4% of 1.1267/1.1442 upleg) to generate bearish signal for attack at 1.1267 (28 Nov trough) and possible extension towards 2018 low (1.1215). Strong barriers at 1.1360 zone (converged MA's/daily Kijun-sen) are expected to limit upticks and keep bears in play.

Res: 1.1334, 1.1360, 1.1400, 1.1418
Sup: 1.1312, 1.1306, 1.1267, 1.1215

The return of President Trump speaking out against monetary policy in the United States appears to have been enough to prevent the Dollar from making a further milestone high for 2018 - at least for now.

President Trump resumed his drive to prevent the Federal Reserve from raising interest rates further by stating that it would be “foolish”, just one week before the central bank meets to discuss the possibility of raising US interest rates as widely expected in December.

It is not that surprising that we have seen the return of rhetoric against Fed policy from Trump, but one of the major takeaways from his comments is the remark that “you have to understand, we’re fighting some trade battles and we’re winning. But I need accommodation too”. This does discreetly imply that it is possible that the Trump Administration isstarting to recognize some of the detrimental impacts that the long-standing US-China trade tensions can have on the United States economy.

Emerging market currencies benefit from Trump remarks

Price action for the Dollar during Wednesday trade so far does suggest that the resumption of buying demand for the Greenback over recent sessions is cooling. This is likely a combination between both the comments made from Trump on Fed policy, and also optimism that the news China will cut car tariffs on US-made cars to 15% will help ease the long-standing trade tensions.

The softness in the Greenback will help provide relief to a number of different emerging market currencies, where improved momentum is noted across Asia and most of the EMEA. Whether the likes of the Chinese Yuan and its emerging market counterparts can push on from here does rely on the unpredictable element ofwhether the next round of trade news to filter through will be looked upon positively by investors.

I do otherwise maintain the view that the Fed will move ahead with raising US interest rates during their meeting next week regardless of the comments made by President Trump, which will lead to speculation that the any near-term rebound in emerging market currencies is not set to last for long.

Indian Rupee unable to benefit from Dollar softness

If anyone would like to see how much buying sentiment for the Indian Rupee has been hurt by the news of former Reserve Bank of IndiaGovernor Urjit Patel stepping down from his position, then you just need to look at the performance of the Indian currency today. A loss of 0.2% against the Dollar might not stand out in the grand scheme of things when it comes to market fluctuations, but this move is coming at a time where many other Asian emerging market currencies are attempting to strengthen against the Dollar.

Speculation over potential political interference into central bank policy is considered as a very serious concern for investors, and the return of this theme in India is representing encouragement for investors to stay clear of the Rupee.

Keep a close eye on the Pound

The British Pound is attempting to stabilize near 1.25 at time of writing but the relentless headlines that UK Prime Minister Theresa May is once again at threat ofa leadership challenge does present a clear picture that risks for the Pound are still firmly pointing lower.

There are generally so many concerns around the broad political landscape with Brexit and also domestically in the UK, that it concludes with avision that there is no light at the end of the tunnel for the British Pound.

Indications that the EU is willing to consider compromises on a Brexit deal would be what is needed to help the British Pound recover some ground, but that is unlikely to be the case.

Instead, the focus of investors will be on the negative aspects of a potential leadership challenge for Theresa May, combined with the increased threat the that United Kingdom is edging dangerously close to a no-deal or even worse, a disorderly Brexit scenario.This is why concerns continue to loom that the Pound is still primed for another leg lower.

Cable dropped even lower yesterday, as Brexit fundamentals continued to keep the pound under pressure, despite a positive employment report for the UK. Reports that a leadership contest within the Tory party is in the works, increased uncertainty over the UK political scene, as PM May's job could be on the line. Nobody actually knows if the necessary 48 letters to trigger the procedure of a leadership challenge within the Tory party have been send, but a party official, Graham Brady. Should the necessary number of letters reach him, he would have to inform the PM and then start the leadership contest procedure. British media seem to insist that the necessary number of letters has been sent and that the procedure could start as early as today. Having said that, should there be a leadership contest this week, Theresa May could find herself in a particularly weak position as she is scheduled to be in Brussels. On other news, Theresa May is on the European mainland, in order to see whether there is a possibility for any changes in the draft Brexit deal, however it seems to be the case that there is little ground for hope. We retain our view that the pound could remain under pressure as uncertainty dominates the UK political scene.

Cable as analysed yesterday, rose during the release of the UK employment data for October, however Brexit headlines pushed the pair's prices down, breaking the 1.2555 (R1) support line (now turned to resistance). We maintain our bearish outlook for the pair's direction and note once again that the RSI indicator in the 4 hour chart remains near the reading of 30, signalling a possibly overcrowded short position for the pound. Should the pair continue to be under the market‘s selling interest we could see it for breaking the 1.2485 (S1) support line and aim for the 1.2415 (S2) support barrier. Should on the other hand the pair's direction be dictated by the bulls, we could see it breaking the 1.2555 (R1) resistance level and aim for higher grounds.

USD continues to strengthen as US treasury yields rise

The USD strengthened against a number of its counterparts yesterday, as the US bond yields rose. The 10 year treasury yield, inched up to 2.886%, yesterday continuing to distance itself from recent lows and supporting the USD. Analysts continue to view the risks tilted to the down side for the USD in 2019, as the Fed had managed to normalise its monetary policy over the year, but could prove unable to continue to ignore the turbulence at home and abroad. Also the weakening of the pound could have provided some support for the USD, as a number of traders shortened cable. On other news, US president Trump told Reuters that he would intervene in the Justice Department's case against Huawei's CFO, should it serve the national interest. We see the case for the USD to continue to be supported as long as the US treasury yields rise.

EUR/USD dropped yesterday, breaking the 1.1345 (R1) support level (now turned to resistance). Financial releases for the two currencies of the pair could be pointing out that some support could be in the works for EUR/USD, however should the market continue to favor the USD side, we could see it dropping even further. Technically we could say that for our bearish bias to be lifted we would require the pair to clearly the downward trendline incepted since Monday. Should the bears continue to reign over the pair's direction we could see it breaking the 1.1305 (S1) support line and aim for the 1.1265 (S2) support barrier. Should on the other hand, the market favor the pair's long positions, we could see it breaking the 1.1345 (R1) resistance line and aim for the 1.1385 (R2) resistance hurdle.

In today's other economic highlights:

In today's European session, we get Sweden's CPI rate for November and Eurozone's Industrial production growth rate for October. In the American session we get the CPI rates for November as well as the EIA weekly crude oil inventories figure. Also please note that the monthly OPEC market report is due out today.

GBP/USD H4

Support: 1.2485 (S1), 1.2415 (S2), 1.2340 (S3)

Resistance: 1.2555 (R1), 1.2630 (R2), 1.2700 (R3)

EUR/USD H4

Support: 1.1305 (S1), 1.1265 (S2), 1.1220 (S3)

Resistance: 1.1345 (R1), 1.1385 (R2), 1.1425 (R3)

• Sterling near 20-month lows as Conservative lawmakers trigger no-confidence vote in Theresa May; ballot to be held today
• Risk appetite recovers as Trump and China stoke hopes for a deal
• Euro remains on the back foot ahead of tomorrow’s ECB meeting
• US inflation data on tap

Sterling crumbles as Tories trigger leadership challenge

The British pound sank to a fresh 20-month low versus the dollar on Tuesday, following reports that “rebels” within Theresa May’s Conservative party nearly have the numbers required to trigger a leadership challenge against the PM. Earlier today, it was confirmed that the no-confidence vote has officially been triggered – the ballot will be held at around 1800 GMT. The timing was critical; it came as PM May was visiting European capitals in an attempt to squeeze out some last-minute assurances on the Irish backstop.

Hence, uncertainty deepens further, as any concessions granted by the EU may not mean much if May is replaced by someone who doesn’t share her Brexit views – a Boris Johnson for instance. As for the pound, its near-term direction may hinge on whether May can survive this leadership struggle or not. If she stays, the currency could soar as attention turns back to what kind of reassurances the EU will grant, whereas a potential defeat for May could see sterling touch new lows as political uncertainty peaks and the risk of a disorderly Brexit is amplified.

Risk sentiment recovers as China and Trump stoke optimism

It was volatile session for risky assets, and in particular stocks, on Tuesday. Sentiment was initially boosted by reports China is planning to cut tariffs on American cars, which was seen as a gesture of good faith in the talks. That didn’t last though, and US indices reversed to close slightly lower overall, after Trump threatened to shut down the government if Democrats don’t side with him on border security.

Later, during the Asian session on Wednesday, risk appetite recovered after Trump noted he would definitely intervene in the Huawei case, if that would help secure a better trade deal with China. Asian stocks were a sea of green, while futures tracking the likes of the S&P 500 are pointing to a higher open today. Although both sides have been trying to stoke optimism lately, playing up the prospect that these talks will bear fruit, recent price action suggests investors remain skeptical. The “game changer” would be any signs China is willing to make some concessions on the burning issues of forced technology transfer and intellectual property protection, which aren’t evident yet.

Euro unable to sustain gains amid Brexit woes, French uncertainties

The common European currency remains broadly on the back foot, as the Brexit drama continues to dim the prospects for the Eurozone as well. Another contributing factor may be that markets appear increasingly nervous the EU may be forced to issue a negative reply to Macron’s expansionary budget plans, or risk Italy’s wrath. Italian politicians made it clear yesterday their nation will not stand for any preferential treatment of France on fiscal matters, adding yet another layer of uncertainty to European politics. In the more immediate-term, all eyes remain on the ECB policy meeting tomorrow.

US inflation data on the agenda today

The highlight on the economic calendar today will be the US CPI figures for November, due at 1330 GMT. Forecasts are mixed, with the headline CPI rate expected to dip following the recent plunge in energy prices, but the core rate anticipated to tick higher. Given recent speculation that the Fed will pause its tightening cycle in 2019, these figures may be crucial in shaping market expectations ahead of next week’s policy meeting and thereby, in determining the dollar’s near-term direction.

Note that the dollar has held up quite well in recent sessions, even as investors continued to price out Fed rate-hike expectations, to the point where Fed funds futures now suggest a mere 55% for just one 25bps hike in the entire of 2019. This demonstrates the US currency can currently stay in demand even without support from monetary policy expectations, not least due to a lack of attractive alternatives in the G10 FX space.

Pivot (invalidation): 113.20

Our preference Long positions above 113.20 with targets at 113.70 & 113.85 in extension.

Alternative scenario Below 113.20 look for further downside with 113.00 & 112.80 as targets.

Comment The RSI advocates for further upside.

Pivot (invalidation): 1.2545

Our preference Short @ 1.2510 with targets @ 1.2480 & 1.2450 in extension.

Alternative scenario Above 1.2545 look for further upside with 1.2580 & 1.2640 as targets.

Comment As Long as 1.2545 is resistance, likely decline to 1.2480.

Pivot (invalidation): 1.1350

Our preference Short positions below 1.1350 with targets at 1.1305 & 1.1280 in extension.

Alternative scenario Above 1.1350 look for further upside with 1.1375 & 1.1400 as targets.

Comment As Long as the resistance at 1.1350 is not surpassed, the risk of the break below 1.1305 remains high.

Pivot (invalidation): 5.3300

Our preference Long positions above 5.3300 with targets at 5.4000 & 5.4300 in extension.

Alternative scenario Below 5.3300 look for further downside with 5.3050 & 5.2680 as targets.

Comment The RSI calls for a new upleg.

Pivot (invalidation): 0.7195

Our preference Long positions above 0.7195 with targets at 0.7240 & 0.7275 in extension.

Alternative scenario Below 0.7195 look for further downside with 0.7175 & 0.7160 as targets.

Comment The RSI is mixed to bullish.

Pivot (invalidation): 1.3400

Our preference Short positions below 1.3400 with targets at 1.3365 & 1.3330 in extension.

Alternative scenario Above 1.3400 look for further upside with 1.3420 & 1.3445 as targets.

Comment A break below 1.3365 would trigger a drop towards 1.3330.