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The British pound has started to recover higher against the US dollar, after a bullish technical break above the 1.2835 resistance level. The GBPUSD pair faces volatile trading conditions ahead, as British Prime Minister Theresa May faces a potential leadership challenge this week. The MACD indicator on the four-hour time frame suggests that the GBPUSD pair can continue to correct higher.

The GBPUSD pair is only bearish while trading below the 1.2835 level, key technical support is now found at the 1.2800 and 1.2750 levels.

If the GBPUSD pair holds above the 1.2835 level, key resistance is found at the 1.2882 and 1.2930 levels.

The Australian dollar attempts to consolidate after gap-lower opening on Monday on soured relations between the US and China, over weekend's APEC meeting.

Higher Asian stocks helped Aussie to regain some ground but was unable to fill the gap so far.

The pair rallied strongly last week (up 1.6% for the week) and gained strong bullish signals on weekly close above trendline resistance, which further boosted developing reversal signal.

Negative impact on news could be short-lived, but profit-taking after last week's strong rally could spark deeper correction.

Momentum studies on daily chart turned south and slow stochastic is overbought, adding to correction signals.

Deeper pullback needs to hold above strong supports at 0.7250 zone (converging 10/100SMA's/daily cloud top) to keep bulls in play for fresh upside.

Friday's high at 0.7335 marks initial barrier, followed by 0.7381 (lower top of 21 Aug) violation of which would expose key Fibo barrier at 0.7446 (38.2% of 0.8135/0.7020 fall). Negative scenario requires close below0.7250 pivots to weaken near-term structure and risk deeper fall.

Res: 0.7335, 0.7381, 0.7445, 0.7465
Sup: 0.7302, 0.7250, 0.7235, 0.7215

Investors are the most bearish on the pound since the U.K. voted to leave the European Union as markets brace for the possibility of a no-confidence vote in Prime Minister Theresa May’s leadership. The Sun newspaper reported that 42 lawmakers have sent letters of no confidence against May, with six more needed to trigger a leadership challenge.

The pound declined more than 1 percent last week after several of May’s ministers quit in disagreement over her Brexit divorce deal with the EU. The political turmoil has opened up a multitude of risks for sterling, including the prospect of new elections or even a second referendum.

Should the Prime Minister manage to stay on, she will still have a challenge getting her Brexit deal — which leaves the U.K. tied to the EU’s customs union — through parliament. RBC Capital markets said last week that the best and worst-case scenarios could lead to a 10 percent swing in the currency. May will spend Monday appealing to business leaders, addressing the Confederation of British Industry later in an attempt to convince them to back an agreement few in her own party think is ideal. The pound gained 0.2 percent to $1.2857 as of 7:51 a.m. Monday in London. Against the euro, it advanced 0.3 percent worth 88.76 pence after having slumped close to 2 percent last week.

EUR/USD

Current level - 1.1416

The recent break through 1.1360 has neutralized the bearish outlook and the bias is positive, for a violation of 1.1430 dynamic resistance, towards 1.1500 area.

USD/JPY

Current level - 112.76

The intraday bias is bearish, for a break through 112.50, towards 112.00 area. Initial resistance lies at 113.10.

GBP/USD

Current level - 1.2853

The low at 1.2720 could be a finale of the whole slide since 1.3170 and I favor a break through 1.2880 to trigger a rise towards 1.3040.

The pair is consolidating within daily cloud on Monday, after 0.67% fall last Friday, when comments from Fed official Clarida shook expectations for rate hike in Dec and prompted investors into safe-haven yen, sending the dollar sharply lower.

Dollar's biggest one-day fall in Nov hit the lowest since 02 Nov and penetrated thick daily cloud (cloud top lays at 112.82) but failed to close in the cloud on Friday.

Fresh weakness on Monday holds in the cloud and was so far capped by cloud top, now reverted to resistance.

Weakening daily studies (10.20.30SMA's turned to negative setup and bearish momentum is strengthening) support near-term bears, along with weekly bearish engulfing.

Friday's big bearish daily candle weighs as fresh bears cracked rising 555SMA (112.68) and look for next pivot at 112.45 (Fibo 61.8% of 111.37/114.20 upleg) to confirm reversal from 114.20 and expose next key supports at 112.16/04 (daily cloud base/Fibo 76.4%/100SMA).

Persisting concerns about US/China trade conflict and fears about slowing global growth keep risk-off mode and maintain pair's negative near-term bias.

Res: 112.84. 113.08. 113.52. 114.00
Sup: 112.60. 112.45. 116.16. 112.04

The USD bulls may start losing steam, as the Fed’s officials made some worrying comments about global growth and trade wars. Comments made by Fed’s Richard Clarida indicated caution about a slowdown in global growth and that it could relate to the outlook of the US economy. The comments were indirectly confirmed by Dallas Fed President Robert Kaplan, who said that he is seeing some slowdown in Europe and China. Analysts point out that the market may perceive the comments as hints of a possible slowdown of the Fed’s future rate hike path. New York Fed president John Williams will be speaking later today and volatility could rise again for the greenback.

EUR/USD rose on Friday, breaking the 1.1345 (S2) and the 1.1385 (S1) resistance lines (now turned to support) and stabilised above it. We could see the pair continuing to trade in a bullish market should the USD side remain under pressure. Also EU economic commissioner’s Moscovici, speech in Rome today could stir some volatility for the EUR side. Should the pair find fresh buying orders along its path we could see it breaking the 1.1430 (R1) resistance line and aim for the 1.1490 (R2) resistance level. Should the pair come under selling interest, we could see it breaking the 1.1385 (S1) support line and aim for the 1.1345 (S2) support barrier.

JPY strengthens against USD, on rising US-Sino trade frictions.

The JPY strengthened against the greenback on Friday, as US-Sino tensions escalated further on comments made by US Vice President Pence. The comments made, included calling nations to avoid loans that would leave them indebted to Beijing. Analysts point out that the comments made, strengthen concerns of a wider escalation in the US-Sino trade relationships. Also Pence said that the US isn’t in a rush to end the trade war and would “not change course until China changes its ways”. The comments reduced expectations of a possible deal or positive developments from the meeting of US president Trump and Chinese President Xi, near the end of the month. We would like also to mention the possibility of Vice President Pence’s comments being part of a US tactic ahead of the Trump-Xi meeting, however, both countries had indicated in the past that the tensions could linger on for a longer period of time. As a safe haven, the Yen seems to enjoy support, also from the risks regarding Brexit and the Italian budget issue.

USD/JPY dropped on Friday, breaking the 113.25 (R1) support line (now turned to resistance) and testing the 112.72 (S1) support level. We could see the pair continue to trade in a bears market, as the USD side seems to be in a weak position right now. Should the bears continue to dictate the pair’s direction we could see the pair breaking the 112.72 (S1) support line and aim for the 112.15 (S2) support level. Should the bulls take over, we could see the pair breaking the 113.25 (R1) resistance line.

In today’s other economic highlights:

In today’s European session we get Eurozone’s current account balance for September. Focus may be turned to today’s speakers, as EU’s economic commissioner Pierre Moscovici and New York Fed President John Williams speak.

As for the rest of the week:

On Tuesday, we get Germany’s PPI for October, and from the US the number of Building Permits and Housing starts for October and in the UK the inflation hearings will be held. On Wednesday from the US, the Durable goods orders growth rates for October, the number of Existing Home sales for October and the Michigan Consumer Sentiment for November are due out. On Thursday, Japan’s CPI rates for October are to be released as well as ECB’s account of its last monetary policy meeting. On Friday, we get Japan’s Mfg PMI for November, Germany’s GDP for Q3, a number of preliminary PMI’s affecting the Eurozone for November, Canada’s CPI rates for October and Canada’s retail sales for September.

USD/JPY H4

Support: 112.72 (S1), 112.15 (S2), 111.60 (S3)

Resistance: 113.25 (R1), 113.95 (R2), 114.55 (R3)

EUR/USD H4

Support: 1.1385 (S1), 1.1345 (S2), 1.1305 (S3)

Resistance: 1.1430 (R1), 1.1490 (R2), 1.1550 (R3)

Gold has reversed back up again after finding support at the short-term ascending trend line during the preceding week. The price reached a one-week high of 1225 on Friday before falling back below 1220.

The momentum indicators lost their strong positive momentum in the 4-hour chart. The RSI indicator remains in bullish territory and is pointing slightly up, while the MACD oscillator is flattening above the trigger and zero lines. Moreover, the yellow metal remains well above the bullish crossover of the 20- and 40-simple moving averages (SMAs) in the near term.

Upside moves are likely to find resistance between the 23.6% Fibonacci retracement level of the upleg from 1160 to 1243 around 1223 and the 1225 resistance level. Rising above this area would help shift the focus to the upside towards the 1236 barrier, taken from the peaks at the beginning of November.

In case of bearish pressures, the price could hit the 20-SMA near 1213 before touching the 38.2% Fibonacci mark of 1211. Even lower, the yellow metal could re-test the 1204 support, which stands slightly above the 50.0% Fibonacci of 1201 and the rising trend line.

In the bigger picture, gold prices remain above the rising trend line, which has been holding since August 16.

Here are the latest developments in global markets:

FOREX: The dollar is practically unchanged on Monday, licking its wounds after a considerable drop in the previous session, which came on the back of cautious commentary from Fed policymakers. The euro capitalized the most on the dollar’s retreat, remaining largely unfazed by the heightened volatility in the British pound.

STOCKS: The Dow Jones (+0.49%) and the S&P 500 (+0.22%) closed higher on Friday, after US President Trump hinted at a potential “ceasefire” in the US-China trade skirmish. However, the tech-heavy Nasdaq Composite (-0.15%) inched lower, weighed down by chipmaker Nvidia (-18.76%) and Facebook (-3.00%). Asia was mostly higher on Monday, with benchmarks in Japan, China, and Hong Kong posting moderate gains. Meanwhile, all major European indices were set for a higher open today, according to futures.

COMMODITIES: Crude prices are higher on Monday, supported by Russian Energy Minister Novak saying earlier that his nation is planning to sign a partnership agreement with OPEC. His comments likely enhanced speculation for an OPEC production cut to help support oil prices, which have taken a beating since early October. In precious metals, dollar-denominated gold advanced on Friday as the greenback retreated, crossing back above its 50- and 100-day moving averages. It is currently hovering at $1220 per ounce. A decisive close above the crossroads of the downtrend line drawn from the highs of May and the $1,237 zone is needed to turn the medium-term picture back to positive.

Major movers: Dollar drops on “cautious” Fed commentary

The Fed’s newly appointed Vice Chairman, Richard Clarida, struck a rather cautious tone on Friday, indicating there’s growing evidence global growth is slowing and that the Fed is drawing closer to “neutral”. Regional Fed Presidents Kaplan and Harker echoed a similar bias, with Harker even suggesting he’s not convinced a rate increase in December is “prudent”. Markets interpreted these remarks as a signal the Fed is growing collectively more concerned over international headwinds, and that it may fall short of meeting its own rate projections in 2019 should this global softness spill over into the US.

Hence, the dollar fell alongside US Treasury yields, which declined across the maturity spectrum as investors priced out rate-hike expectations in 2019. A 25bps hike in December is still priced in with a 75% probability according to the Fed funds futures, but after that one, investors only anticipate one more in the first half of 2019, implying the Fed is now expected to pause hiking for at least a quarter. If more Fed officials – and particularly permanent FOMC voters such as Brainard or Williams – assume an equally defensive stance, that could be the trigger for some more long-dollar bets to be unwound. Williams speaks today at 1545 GMT.

In the UK, sterling moves remain purely a function of Brexit headlines. The latest reports suggest that 42 out of the 48 letters required to trigger a no-confidence vote in PM May have been collected, so a Tory leadership struggle could occur at any moment. Even if she manages to win, any such fight would only serve to underscore the fragility of May’s position. Thus, moves in the pound are set to stay headline-driven and large in magnitude, especially considering the market may be thinner than usual following the violent swings in recent sessions.

Elsewhere, US stocks closed mostly higher on Friday, aided by optimism a Sino-American “trade ceasefire” may be looming after President Trump said he may not impose further tariffs on China. This may have also contributed to the dollar’s underperformance, as haven-bets on the currency were pared back. That said, it’s questionable whether a “truce” will finally be brokered, given comments from US Vice President Pence over the weekend that the US is in no rush to end the conflict.

Day ahead: Brexit, Italy, Sino-US trade relations in focus in the absence of releases; Fed’s Williams on the agenda

Monday’s calendar is empty of potentially market-moving releases, at least for FX markets. The focus during the day will be on major themes at play for some time now, for example Brexit.

On the data front, the NAHB housing market index out of the US is due at 1500 GMT, though this is not expected to affect the greenback. It should be kept in mind that the world’s largest economy will be on the receiving end of key housing market data on housing starts and existing home sales as the week unfolds.

Brexit headlines may again be the primary driver of FX moves during Monday’s trading. PM May’s Brexit plan doesn’t look like it will get parliamentary approval, while her leadership remains in the balance as well.

Elsewhere, euro traders will be eyeing any news relating to the EU-Italy budget standoff. Of note, European Economic Commissioner Moscovici will be holding a news conference in Rome at 1330 GMT.

Another theme having the capacity to steer market sentiment and thus positioning are developments having to do with the US-China trade spat. It is notable that last week’s APEC (Asia-Pacific Economic Cooperation) group meeting failed to agree on a communique for the first time in its history on the back of disagreements over trade between the US and China.

New York Fed President Williams, who holds permanent voting rights within the FOMC, will be participating in a discussion at 1545 GMT. His comments may attract more interest, given they come in the aftermath of some cautionary remarks by Fed vice chair Clarida and Dallas Fed President Kaplan. Meanwhile, ECB chief Draghi and executive board member Coeure will be participating in a Eurogroup meeting.

Lastly, the RBA will be releasing the official record of its November meeting at 0030 GMT

Technical Analysis: EURGBP momentum may be shifting to the downside

EURGBP’s surge during the latter part of last week that allowed it to rise to a three-week high of 0.8904 on Friday definitely turned the short-term momentum towards a bullish direction. The pair has eased a bit though since then, with the RSI remaining in bullish territory above 50 though reversing course to head lower; this may be an early sign of momentum shifting to the downside.

More Brexit uncertainty is expected to push the pair higher. Given a move above the current level of the 100-day moving average at 0.8879, resistance could occur around last week’s three-week high of 0.8904. Another peak at 0.8939 lies not far above with the area around it capturing the 0.8943 top as well. Higher still, a barrier to steeper gains may come around the 0.90 handle that may hold psychological importance.

On the downside and in the event of more clarity on Brexit, support could come around the 50-day MA at 0.8830; the zone around this encapsulates a couple of tops and a bottom from the past. Even lower, the region around 0.8750 which was congested between late April to late June would be eyed.

Developments relating to the EU-Italy budget dispute can also move the pair.

Cable holds positive tone in early European trading on Monday and pressures last Friday’s spike high at 1.2877, as fresh dollar’s weakness over rate hike concerns, keeps sterling bid and sidelines Brexit fears.

Political turmoil in the UK over Brexit talks keeps the pound volatile, as last week’s resignation of Brexit minister in the cabinet resulted in strong fall.

Daily techs are mixed, as MA’s remain in bearish setup. RSI and slow stochastic are flat, while momentum remains strong, lacking clearer direction signal.

Recovery needs break above pivotal barriers at 1.2895 (Fibo 38.2% of 1.3174/1.2722) and 1.2916 (falling 20SMA) to generate bullish signal for stronger recovery, while the downside would remain vulnerable if 20SMA limits u fresh bulls.

Focus remains at Brexit talks as pound’s recent key driver, with fresh news about the progress of negotiations, as well as tensions within PM May’s cabinet, expected to provide traders with fresh signals.

Res: 1.2883. 1.2895. 1.2916. 1.2948
Sup: 1.2818. 1.2805. 1.2760. 1.2722

The Euro probes above new 1 1/2 week high at 1.1420 after narrow consolidation in early Monday's trading, following 0.8% advance on Friday (the biggest one-day rally in Nov).

Strong bullish acceleration on Friday was sparked by comments from Fed's new vice chairman, who pointed at global growth slowdown, which could impact the outlook for the US economy.

Markets reacted on news, sending dollar lower across the board, as the comments from one of Fed's top officials raised a question mark above strong expectations for Fed's another rate hike in December.

The single currency maintains positive near-term tone, as last week's recovery rally from 1.1215 double-bottom eased downside risk and shifted focus at key Fibo barrier at 1.1444 (38.2% of 1.1815/1.1215 descend).

Fresh bulls were so far capped by falling 30SMA (1.1421) which guards 1.1444 pivot, with consolidation expected to hold above broken 20SMA (1.1369) and keep bullish near-term bias.

Sustained break above 1.1444 Fibo barrier would generate bullish signal for recovery extension towards 1.1499 (07 Nov spike high) and next pivot at 1.1515 (50% of 1.1815/1.1215 reinforced by falling 55SMA).

Daily techs maintain strong bullish momentum, with thin daily cloud twisting next week, expected to attract bulls.

The notion is supported by last week's bullish long-tailed weekly candle, following the third consecutive failure to close below 200WMA (1.1313), which also generated positive signal on formation of weekly bullish engulfing.

Res: 1.1444. 1.1499. 1.1515. 1.1559
Sup: 1.1393. 1.1369. 1.1352. 1.1321