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The battered Pound was thrown a lifeline today after the European Court of Justice Advocate General Campos Sánchez-Bordona stated that Britain can unilaterally revoke its decision to leave the European Union.

Sterling’s aggressive appreciation to this news continues to highlight how explosively volatile and extremely sensitive the currency has become to Brexit headlines. Although the European Court of Justice may allow the United Kingdom to take a U-turn on Brexit, investors need to consider whether this is a realistic option for the UK government. With the government seen respecting the results of the Brexit referendum and vote to leave, this noise over the UK possibly withdrawing article 50 is poised to fade away.

It will most likely be another rough, rocky and unpredictable trading week for the Pound as anticipation mounts ahead of the Parliamentary vote on Brexit. With pessimism in the air over Theresa May’s Brexit deal being squarely rejected by Parliament, appetite towards the Pound is seen diminishing further.

Focusing on the technical picture, the GBPUSD is staging a rebound on the daily charts with prices trading marginally above 1.2810 as of writing. While Sterling has scope to edge higher in the near term with Dollar weakness supporting upside gains, the longer-term trajectory still points to the downside. With the Pound’s outlook for the rest of 2018 hanging on Parliament’s Brexit vote, the next few trading days will certainly be eventful. If the 1.2850 level proves to be a stubborn resistance, the GBPUSD has scope to descend back towards 1.2700.

Dollar extends losses as Treasury yields fall

Falling U.S. Treasury yields, a US-China trade truce and speculation over the Fed potentially taking a break on rate hikes in 2019 have offered nothing but bad news to the Dollar.

Although there seems to be a sense of uncertainty over what the United States and China agreed on over the weekend, investors still remain cautiously optimistic over trade tensions easing in the short to medium term. If this week’s pending U.S. jobs report for November is unable to match market expectations, the Dollar is at threat of extending losses with 96.10 acting as the first point of interest.

Gold jumps to one month high

Gold has entered December on an incredibly bullish note with prices currently trading at levels not seen in over one month, above $1,238.

With the Dollar facing multiple headwinds in the form of falling U.S. Treasury yields and a Fed that seems to be adopting a dovish tone, this is all good news for zero-yielding Gold.  Today’s aggressive appreciation continues to highlight how the yellow metal remains primarily influenced by the Dollar’s performance. Focusing on the technical picture, Gold is bullish on the daily timeframe as there have been consistently higher highs and higher lows. A solid breakout above the $1,240 resistance level may open a path towards $1,248.

USDTRY strengthened sharply today, climbing to a new two-week high, around 5.3653, extending its run from the pullback on 5.1330. The bullish picture in the very short-term is further supported by the RSI, which is rising above the 50 level and the stochastic oscillator hovers in the overbought territory. Also, the price advances above the 20- and 40-simple moving averages (SMAs) in the 4-hour chart.

In the event of further upside reversal, the 5.4360 could act as a barrier before being able to re-challenge the 5.5270 hurdle. A leg above this level would drive the pair until the 23.6% Fibonacci retracement level of the downward movement from 7.1083 to 5.1330, around 5.5970.

However, further losses should see the four-month low of 5.1330 acting as a major support level, recorded on December 3. A dive below this region would reinforce the bearish structure in the medium-term and open the way towards the next key support of 4.9800.

Turning to the medium-term picture, the market seems to be switching from a bearish mode to a more neutral to bullish one given that the price surpassed the moving averages.

Daily Pivots: (S1) 1.1322; (P) 1.1352; (R1) 1.1385; More.....

EUR/USD is still bounded in range of 1.1267/1472. Intraday bias remains neutral first. As long as 1.1472 resistance holds, deeper decline is expected in the pair. On the downside, break of 1.1267 will target 1.1215 low first. Firm break there will resume larger down trend from 1.2555 for 1.1186 fibonacci level next. However, considering bullish convergence condition in daily MACD, firm break of 1.1472 will be suggest medium term bottoming and turn outlook bullish for 1.1814 resistance instead.

In the bigger picture, as long as 1.1814 resistance holds, down trend down trend from 1.2555 medium term top is still in progress and should target 61.8% retracement of 1.0339 (2017 low) to 1.2555 at 1.1186 next. Sustained break there will pave the way to retest 1.0339. However, break of 1.1814 will confirm completion of such down trend and turn medium term outlook bullish.

Daily Pivots: (S1) 1.2674; (P) 1.2749; (R1) 1.2800; More...

GBP/USD rebounds ahead of 1.2692 support but upside momentum is weak. Intraday bias is turned neutral first. on the downside, Decisive break of 1.2661 low will resume larger down trend from 1.4376. On the upside, break of 1.2927 resistance will bring stronger rebound. After all, price actions from 1.2661 are viewed as a consolidation pattern. Even in case of strong rebound, upside should be limited by 1.3316 fibonacci level to bring down trend resumption eventually.

In the bigger picture, whole medium term rebound from 1.1946 (2016 low) should have completed at 1.4376 already, after rejection from 55 month EMA. The structure and momentum of the fall from 1.4376 argues that it's resuming long term down trend. And this will be the preferred case as long as 38.2% retracement of 1.4376 to 1.2661 at 1.3316 holds. However, firm break of 1.3316 would bring stronger rebound to 61.8% retracement at 1.3721. And, the eventual depth of the fall from 1.4376, and the chance of hitting 1.1946 low, will depend on the strength of the interim corrective rebound from 1.2661.

Daily Pivots: (S1) 0.9963; (P) 0.9981; (R1) 0.9997; More...

Intraday bias in USD/CHF remains neutral for sideway trading above 0.9908. On the downside, break of 38.2% retracement of 0.9541 to 1.0128 at 0.9904 will resume the fall from 1.0128 to 0.9848 key support level. Break there will indicate near term reversal and target 61.8% at 0.9765. On the upside, break of 1.0006 will argue that the pull back from 1.0128 has completed. Intraday bias will be turned back to the upside for retesting 1.1028.

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.

The Canadian dollar has edged higher in the Tuesday session, after sharp gains at the start of the week. Currently, USD/CAD is trading at 1.3179, down 0.14% on the day. On the release front, the sole event in Canadian Labor Productivity, which is expected to drop to 0.4%. On Wednesday, the Bank of Canada is expected to maintain the benchmark rate at 1.75%.

The Canadian dollar started the week with sharp gains, after the U.S. and China agreed to a truce in the tariff war. Investors gave a thumbs-up to a crucial meeting at the G-20 summit between President Trump and Chinese President Xi Jinping. The two leaders agreed to suspend any further tariff moves until March 1. Trump had threatened to raise tariffs on all Chinese products from 10 percent to 25 percent on December 1, and news of the suspension between the world’s two largest economies triggered sharp rises in the equity markets and boosted trade-dependent currencies, including the Canadian dollar. However, the optimism over the reprieve has proven to short-lived, as Asian and European stock markets are lower on Tuesday. Will the Canadian dollar follow suit? China and the U.S. remain far apart on a number of issues, including repeated charges by the U.S. that China is engaged in theft of U.S. intellectual property. The markets have been very sensitive to the trade dispute, and the upcoming negotiations between the U.S. and China, with the likely ups-and-downs, will likely have a significant effect on the fortunes of the Canadian dollar.

Just a few weeks ago, there was a strong likelihood that Bank of Canada would raise interest rates for a fourth time this year at the Wednesday policy meeting. However, the ongoing global trade war has taken a bite out of Canadian exports, and a more dovish Fed has lessened the pressure on the BoC to continue raising rates. There are other factors which lean against raising rates at the Wednesday meeting. The most recent GDP release disappointed with a 0.2% decline, the first month the economy has contracted since January. As well, falling oil prices have dampened inflation expectations,

Daily Pivots: (S1) 113.40; (P) 113.61; (R1) 113.86; More..

Intraday bias in USD/JPY remains on the downside as fall from 114.03 is in progress for 112.30. Break there will target 111.37 and below. On the upside, above 113.18 minor resistance will turn intraday bias neutral first. And, break of 114.03 will resume the rise from 111.37 to 114.73 resistance. Overall, price actions from 114.54 are seen as a consolidation pattern. Hence, even in case of deep decline, downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound.

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.

Dollar is under broad based selling pressure on falling treasury yields, globally. In particular, 10 year yield drops below 3% level for the first time since September. Canadian Dollar and Swiss Franc are following as the next weakest. On the other hand, return to risk aversion and falling global yields pop up Yen as the strongest. Sterling follows as second strongest, lifted by news that it could get a "get of of jail" card for revoking Brexit unilaterally.

In the bond markets, US 10 year yields hits as low as 2.962 in early trading, back below 3%. German 10 year bund yield is trading down -0.015 at 0.293, below 0.3 handle for the first time since July. Japan 10 year JGB dropped -0.014 to 0.069, lowest since July too.

In other markets, at the time of writing, FTSE is down -0.51%, DAX is down -0.53%, CAC is down -0.35%. DOW futures point to slightly lower open. Earlier in Asia, Nikkei dropped -538.71 pts or -2.39% to 22036.05. Singapore Strait Times dropped -0.72% to 3167.79. But Hong Kong HSI rose 0.29% to 27260.44. China Shanghai SSE rose 0.425 to 2665.95

Technically, Sterling's rebound today after breaching near term support suggests that it's not ready to resume recent down trend yet. The keys to watch for the rest of today are EUR/USD and USD/CHF. EUR/USD is in range of 1.1267/1472. USD/CHF is in range of 0.9908/1.0006. Break out of the ranges would reveal the broad direction in Dollar.

ECJ advocate general said UK can withdraw Brexit unilaterally

European Court of Justice's advocate general said today that UK has the right to withdraw Brexit notice unilaterally, up to the point of formal conclusion of the deal. ECJ usually follow the advocate general's opinions in its final rulings even though they're not binding.

To be more exact, ECJ said "Advocate General (Manuel) Campos Sanchez-Bordona proposes that the Court of Justice should declare that Article 50 … allows the unilateral revocation of the notification of the intention to withdraw from the EU". And, "That possibility continues to exist until such time as the withdrawal agreement is formally concluded."

But the UK Prime Minister Theresa May's spokesman quickly come out and said the government position on Brexit article 50 will not be revoked.

BoE Carney: Brexit worst-case scenarios were low-probability events

BoE Governor Mark Carney testified in the parliament today on the Brexit economic analysis today. Carney said the worst-case scenarios were "low-probability events in the context of Brexit" that BoE has to prepare the banking system for. But he also said "we're already sleeping soundly at night, because we have the financial sector, the core of the financial sector, in a position that it needs to be for a tough scenario."

Carney also defended the analysis and said "There's no exam crisis. We didn't just stay up all night and write a letter to the Treasury Committee. And, "You asked for something that we had, and we brought it, and we gave it to you."

UK PMI construction rose to 53.4, job accelerates with upward pressure on wages

UK PMI construction rose to 53.4 in November, up from 53.2 and beat expectation of 52.5. That's also the highest level in four months. Markit noted there is solid expansion of overall construction output. Residential work reclaims its place as best performing area of construction activity. Job creation accelerates to its fastest since December 2015.

Tim Moore, Economics Associate Director at IHS Markit, noted that "UK construction sector remains in expansion mode, with resilient business activity trends seen for housing, commercial and civil engineering activity. The latest overall rise in construction output was the fastest since July, helped by a stronger contribution to growth from house building activity.

Also released in from Europe, UK BRC retail sales monitor dropped -0.5% yoy in November. Swiss CPI dropped -0.3% mom, rose 0.9% yoy in November, versus expectation of -0.1% mom, 1.1% yoy. Eurozone PPI rose 0.8% mom, 4.9% yoy in October, above expectation of 0.5% mom, 4.5% yoy.

Italian PM Conte to submit new budget with lower deficit target, within hours

Avvenire daily newspaper reported that Italian Prime Minister Giuseppe Conte said he will submit a new 2019 Draft Budget Plan to EU in the next few hours. There is no detail about the new plan yet. But Conte said new proposal could reasonably include a deficit lower than previously forecast. That is, it would be lower than the deficit target of 2.4% of GDP 2019.

European Commission for for Economic and Financial Affairs Pierre Moscovici said the Commission is waiting for concrete and credible moves from Italy on the budget. He noted that talks were now proceeding at an intense pace, but emphasized that the Commission was "waiting for more details".

Aussie steady after RBA stands pat at 1.50%, reactions muted

Australian Dollar trades mildly firmer against dollar after RBA left cash rate unchanged at 1.50%. But it's overall steady and mixed as reaction to RBA is rather muted. In short, RBA maintained that fall in unemployment rate will eventually lift inflation to target. But again, the central bank expected the progress to be "gradual", implying that there is no urgency to lift interest rate any time soon.

On the economy, the central scenario for GDP growth is to average around 3.5% in 2018 and 2019. Then it would slow to 2020 due to slower growth in export of resources. Outlook for labor market remains "positive". Improvement in the economy should see "some further lift in wages growth" over time, gradually. CPI is expected to pick up over the next couple of years gradually to. And, the central scenario if for inflation to be at 2.25% in 2019 and a bit higher in 2020.

More on RBA:

• RBA More Concerned about Housing Markets, Disinflation Likely Keeps Policy Rate Unchanged for 2019
• RBA Keeps Cash Rate on hold; Cites Risks around Trade but Confirms Strong Growth Outlook

Also release in Asia Pacific, Japan monetary base rose 6.1% yoy in November versus expectation of 5.7% yoy. Australia current account deficit narrowed to AUD -10.7B in Q3.

USD/JPY Mid-Day Outlook

Daily Pivots: (S1) 113.40; (P) 113.61; (R1) 113.86; More..

Intraday bias in USD/JPY remains on the downside as fall from 114.03 is in progress for 112.30. Break there will target 111.37 and below. On the upside, above 113.18 minor resistance will turn intraday bias neutral first. And, break of 114.03 will resume the rise from 111.37 to 114.73 resistance. Overall, price actions from 114.54 are seen as a consolidation pattern. Hence, even in case of deep decline, downside should be contained by 38.2% retracement of 104.62 to 114.54 at 110.75 to bring rebound.

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.

Economic Indicators Update

EURGBP has had a strong bearish rally this morning after the bounce off the 0.8940 resistance level. Neutral to negative risks remain in the background as the RSI decreases momentum to the downside in the positive region, while the %K line of the stochastic oscillator turned lower and is ready to create a bearish cross with the %D line in the oversold zone.

A decline in the price may retest the 20- and 40-simple moving averages (SMAs), which hold near the 0.8820 critical level. Immediate support level could come from the 0.8810 barrier, before heading even lower towards the inside swing top of 0.8770, identified by the peak on November 12. Any violation of this area would resume the bearish movement from 0.9100, towards the 0.8655 hurdle.

An advance in the price may retest the 0.8940 resistance level, identified by the high on October 30. A break higher would turn focus to 0.8995, registered on September 21, which tried to halt upside movements several times in the past. Above that, investors would be interested to see whether bullish dynamics can overcome the previous peak and meet the one-year high of 0.9100.

To conclude, both the short- and medium-term outlooks are looking neutral at the moment.

Entering into US session, Yen remains the strongest one for today as markets are back in risk averse mode. Major European indices are all down. And more importantly, it should be noted that Japanese Nikkei closed down -2.39% or 0538.71 pts. Japan 10 year yield dropped -0.0142 to 0.069, a level we haven't seen for months. These provided some solid risk aversion support to Yen.

Sterling reversed earlier losses and is trading as the second strongest one. It's possibly limited by news that European Court of Justice's advocate general said today that UK has the right to withdraw Brexit notice unilaterally, up to the point of formal conclusion of the deal. On other hand, Dollar is the weakest one on trade truce and falling treasury yields. Canadian Dollar and Swiss Franc followed.

In European markets at the time of writing:

• FTSE is down -0.83%
• DAX is down -0.69%
• CAC is down -0.69%
• German 10 year yield is down -0.018 at 0.29. It's another sign of safe-have flow.
• Italian 10 year yield is up 0.014 at 3.155. German-Italian spread is below 300.
• WTI crude oil extends rebound, breached 54 and is now at 53.90
• Gold is pressing 1240 as rebound extends

Earlier in Asia:

• Nikkei dropped -538.71 pts or -2.39% to 22036.05
• Singapore Strait Times dropped -0.72% to 3167.79
• But Hong Kong HSI rose 0.29% to 27260.44
• China Shanghai SSE rose 0.425 to 2665.95
• 10 year JGB yield dropped -0.0142 to 0.069