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Here are the latest developments in global markets:

FOREX: The British pound plunged on Thursday after the UK Brexit Secretary quit in protest of the Brexit deal, and amid growing speculation PM May could soon face a leadership challenge. Meanwhile, the commodity-linked currencies – aussie, kiwi, and loonie – all gained ground on the back of a report that the US will pause its next round of tariffs on China. The dollar was little changed, unable to draw much strength from a beat in US retail sales data.

STOCKS: Wall Street pared early losses to close in the green on Thursday, following a report that the next round of US tariffs on Chinese goods had been put on hold. While that was later refuted by the top US trade official, markets largely held on to their gains. The tech-heavy Nasdaq Composite outperformed (+1.72%), while the S&P 500 (+1.06%) and Dow Jones (+0.83%) followed in its tracks. Asia was mixed on Friday, with Japanese indices posting moderate losses but Chinese markets inching higher. Meanwhile, all European benchmarks were set for a higher open today, futures suggest.

COMMODITIES: Oil prices rebounded on Thursday and are extending their recovery today, disregarding a bigger-than-expected build in the EIA weekly inventory data. It may be that investors largely anticipate strong inventory builds going forward as the “oversupply theme” has dominated for a while, or that continued speculation for OPEC supply cuts overshadowed stockpile considerations. WTI is currently trading at $57.35 a barrel, and Brent at $67.62. In precious metals, gold prices are a little higher at $1,216 an ounce today (+0.11%), looking set to post a fourth session of advances. Technically, bullion is trading within a symmetric triangle formation, with a break on either side needed to determine the short-term bias.

Major movers: Sterling crashes as Brexit Secretary quits; antipodeans cheer trade news

The British pound slumped on Thursday, in another hectic session marked by a relentless barrage of Brexit-related headlines. Sterling/dollar plunged from near 1.3000 to stabilize around 1.2790, following news that the chief UK negotiator in the EU-UK talks, Brexit Secretary Raab, had resigned – citing “fatal flaws” in the deal. Clouding the political landscape further, reports continue to suggest PM May might soon be faced with a motion of no-confidence by members of her own party. Summarizing, it’s becoming increasingly evident to investors not only that Parliament will likely reject the Brexit deal as things stand, but that Theresa May could also have a Tory mutiny on her hands before long.

Hence, political uncertainty may be set to heighten even further, which in isolation is negative for the pound. The caveat is that if May’s position weakens enough to make a General Election more likely, that may actually prove positive for the pound as the probability for a second referendum may rise in tandem, assuming a Labour government takes power for instance.

Outside of the UK, global risk appetite rebounded on a report that the top US trade official, Robert Lighthizer, told industry executives the next round of tariffs on China had been put on hold. US equity indices jumped to close higher, while risk-sensitive currencies such as the aussie and kiwi outperformed. Funnily enough, while Lighthizer later denied the report, investors apparently didn’t take his words at face value, as markets did not retrace much. All eyes remain on the Trump-Xi Jinping meeting later this month, where expectations are riding high that a “trade ceasefire” may be called.

Flying under the radar, the euro outperformed all its major peers outside of the aussie and kiwi, even despite Brexit worries dominating headlines. It seems that “no news is good news” in Europe presently, as markets await to see whether the EU-Italy standoff will morph into a full-fledged conflict, given Italy’s adamancy to stick to its deficit targets.

Day ahead: Brexit firmly in focus; eurozone final inflation figures and US industrial & manufacturing output on tap

Friday’s economic calendar is relatively light, with revised inflation readings being due out of the eurozone and the US being on the receiving end of prints on industrial and manufacturing production. Beyond releases, Brexit will remain firmly in focus.

Sterling will likely stay hostage to UK political and Brexit developments. Thursday saw the resignation of key ministers from PM May’s government over her Brexit plan, while there are efforts to topple her leadership via a no confidence vote. Consequently, sterling crashed across the board. May’s efforts to ‘sell’ her plan to parliament will be monitored, though the odds she passes it look somewhat remote at the moment, given there’s hostility from opposition as well as Tory lawmakers.

It is notable that the latest twists have led market participants to price out a quarter percentage point rate hike by the Bank of England in 2019.

Final October inflation readings out of the eurozone are due at 1000 GMT. Barring a significant deviation from the flash estimates, which tend to be fairly reliable, the euro is not likely to react much to the numbers. The headline Harmonised Index of Consumer Prices (HICP) is expected to be confirmed at 2.2% y/y, above September’s 2.1%, while core HICP that excludes food, energy, alcohol and tobacco from its calculations is forecast to come in at 1.1% y/y, above the previous 0.9%.

News relating to the EU-Italy budget standoff perhaps have greater capacity to move the euro rather than today’s inflation prints. In this respect, reports saying that Italian PM Conte was looking to work with the EU over his government’s 2019 budget are seen as euro-positive, given they deviate from the previous confrontational rhetoric. The differences between the two sides may not leave much room to maintain the positive momentum for much longer though.

Out of the US, industrial and manufacturing output figures for October will be hitting the markets at 1415 GMT. Industrial production growth is anticipated to expand by 0.2%, slower than September’s 0.3%, though it is of note that this would mark its fifth straight month of increases. Data on October’s capacity utilization are due at the same time.

On the Sino-US trade dispute, China appears to be proceeding with concessions to US demands that may pave the way for a meaningful de-escalation of tensions.

Canadian manufacturing sales for September are due at 1330 GMT.

ECB chief Mario Draghi will be giving a speech at 0830 GMT, with Bundesbank President and ECB policymaker Weidmann making a public appearance at 1300 GMT. Meanwhile, non-voting FOMC member in 2018 Evans will be participating in a Q&A session at 1430 GMT.

In energy markets, Baker Hughes data on active oil rigs in the US are due at 1800 GMT.

Technical Analysis: GBPJPY momentum moves to the downside

GBPJPY reversed course after rising to its highest since early October of 149.48 last week. On Thursday, it hit a two-week low of 144.24. The RSI has been heading lower in recent days, entering bearish territory below 50 and suggesting a negative bias in the short term. Notice though that it has stalled its decline, which may be an early sign of weakening negative momentum.

More Brexit complications are likely to push the pair even lower. Support to losses may occur around yesterday’s low of 144.24. Further below, additional support could emerge around 143.17, the 23.6% Fibonacci retracement level of the downleg from 153.84 to 139.88. Notice that a couple of bottoms from previous months at 143.18 and 142.76 lie close to the 23.6% Fibonacci point. Steeper losses would increasingly bring within scope 139.88, the pair’s lowest since August 2017.

Conversely, receding uncertainty is expected to support GBPJPY. Immediate resistance could take place around the 38.2% Fibonacci mark at 145.20, with the 100-day moving average line at 145.78 being part of the area around this level. Higher still, the zone around the 50% Fibonacci at 146.84 would be eyed; the 50-day MA at 146.93 is also part of this zone. More bullish movement would turn the attention to the 61.8% Fibonacci point at 148.49.

XAUUSD (1215.17): Gold prices continue to maintain the gains, but price action is seen stalling near the previously established local highs. With the Stochastics oscillator showing a hidden bearish divergence, there is a risk of a correction to the downside. The breached resistance area of 1204.08 is likely to be tested in the near term for support if the divergence is validated. Alternately, price action could extend the gains to the upside, targeting 1223.50 level.

GBPUSD (1.2791): The pound sterling posted sharp declines and price action is seen falling back below the 1.2808 level. The sharp fall in the sterling was one of the worst since the Brexit outcome in 2016. The decline back to the level and the support area indicates that price action could remain muted in the near term. We expect the GBPUSD to maintain a sideways range within 1.2808 and 1.2683. However, this time, there is scope for the GBPUSD to fall further and test the 1.2683 level of support.

EURUSD (1.1335): The EURUSD is seen gradually extending the gains. Price action is currently testing the falling trend line which is acting as resistance. A clean break above this trend line is required for the EURUSD to confirm the upside. The upside target at 1.1435 - 1.1463 will be tested in the near term. To the downside, failure to clear the trend line could keep the EURUSD poised to the downside.

The U.S. Dollar was trading mixed on Thursday. The UK and the Brexit news dominated most of the headlines. A day after the EU and the UK announced a draft deal, key members of the cabinet from British PM Theresa May resigned.

The sterling plunged over 1.8% on the news amid a new bout of uncertainty. The resignations included some high profile names such as Dominic Raab, the UK's Brexit secretary. Retail sales were also weaker, plunging 0.5% on the month and was worse than forecast.

Elsewhere, on the economic front, data showed that U.S. retail sales posted a strong rebound in October. Headline retail sales rose 0.8% on the month beating estimates of a 0.5% increase. However, most of the gains came due to increased sales at gasoline stores. Core retail sales jumped 0.7% on the month, but excluding automobile and gasoline sales, retail sales edged just 0.3% higher.

Oil prices were seen rebounding for a second day following the past five consecutive weekly declines.

The economic calendar today will kick off with the ECB President Mario Draghi's speech. The ECB president is expected to speak at the European Banking conference in Frankfurt.

On the economic front, the Eurozone's final inflation data for October will be coming out. Headline inflation is expected to rise 2.2% while core CPI is expected to increase 1.1% on the year ending October 2018.

Data from Canada will see the monthly manufacturing sales report. Manufacturing sales are forecast to rise 0.1% after falling 0.4% previously. The U.S. industrial production figures will be coming out later and expected to show a 0.2% increase.

The USD/JPY made a bearish reversal at the 88.6% Fibonacciretracement level and is now showing strong bearish momentum. A break below the -61.8% Fib target would confirm more downside within the potential wave C (pink).

The USD/JPY is building a potential wave5 (blue) within wave 3 (purple) as long as price stays below the resistance trend line (orange).

ECB President Mario Draghi said recent slowdown has raised questions on the strength of Eurozone growth outlook, and whether the the ongoing convergence of inflation towards target will be sustained. Back in October, Draghi said policymakers have "confirmed our confidence" in the outlook. And, inflation convergence could be maintained even after "gradual" winding-down of net asset purchase.

However, the Governing Council also noted "uncertainties surrounding the medium-term outlook have increased." The council will be "better placed to make a full assessment of the risks to growth and inflation" with the upcoming projections in December meeting.

Draghi's full speech here.

Rates: German Bunds lifted by European risk aversion
Core bonds gained ground yesterday as risk sentiment deteriorated on Brexit turmoil with German Bunds outperforming US treasuries. US Treasuries paired some of those gains on strong US equities, led by technology and banking shares. As there is no economic data to steer trading, general risk sentiment will be today's driver.

Currencies: Sterling hammered on Brexit turmoil. Euro holding fairly strong
Sterling nosedived yesterday as it became clear that it would be very difficult for PM May to get a Brexit deal approved. Initially the dollar profited, but dollar gains/euro losses evaporated later. Today, the eco calendar is thin. Brexit remains a source of uncertainty. However, for now, the dollar again fails to fully play its role as safe haven

The Sunrise Headlines

• US equities rebounded following a lacklustre start yesterday. Tech stocks outperformed (Nasdas + 1.7%). Asian stock markets are trading mixed with Japan underperforming (-0.5%).
• Fed's Powell said on Thursday he will review the way the Fed guides the US economy. Its goals will remain unchanged, but the process – ending in mid-2019 – could lead to a rethink of the used tools and the way it communicates.
• To support its currency the Mexican central bank raised interest rates to 8% whilst suggesting further increases ahead. The peso came under heavy pressure as several recent market unfriendly policy decisions rattled markets.
• British environment Secretary Gove rejected May's offer to make him Brexit Secretary because he isn't allowed to renegotiate the deal - which May fiercely defended during a Parliamentary Q&A and a press conference afterwards.
• US Secretary of Commerce Wilbur Ross said he still expects a China deal eventually but probably not by January, leaving open the possibilities for a tariff increase to 25% as soon as early next year.
• After the Swedish parliament voted against Moderate party leader Ulf Kristersson as new PM, Centre Party leader Annie Lööf will take control of government formation talks to break the 2 month lasting political stalemate.
• Today's economic calendar is rather uninspiring. Final EMU CPI data are due this morning. The US publishes industrial production data later today. ECB President Draghi and Bundesbank President Weidmann are scheduled to speak

Currencies: Sterling Hammered On Brexit Turmoil. Euro Holding Fairly Strong

Sterling hammered on Brexit chaos

Political turmoil in the UK initially caused a global risk-off repositioning yesterday. The dollar spiked higher and EUR/USD dropped below the 1.13 mark. However, the Brexit fall-out on global trading eased later. US eco data were mixed. Equities recovered and the USD reversed earlier gains. Rumours on progress in the US China-talks supported global risk sentiment even as US officials downplayed the progress. Fed speakers Bostic and Kashkari indicated that the US monetary policy is moving closer to a neutral stance, suggesting that they might be in favour of a slowdown in policy normalisation next year. EUR/USD finished the session at 1.1328 (from 1.1310 on Wednesday). USD/JPY closed at 113.64, almost unchanged. So, the usual safe havens (USD, yen) didn't profit much from the Brexit turmoil. At the same time, the euro held up rather well. This morning, Asian markets profit only modestly from the rebound in the US yesterday evening. Tech stocks underperform again (Nvidia results). Markets also still try to assess whether there is any progress in the US-Sino trade talks in the run-up the G20 meeting later this month. Chinese equities slightly outperform. Japan underperforms. Brexit remains a source of caution. USD/JPY (113.30 area) is drifting south. EUR/USD is changing hands in the 1.1345 area. Later today, the eco calendar is only moderately interesting with the final EMU CPI and the US production data. ECB's Draghi and Bundesbank president Weidmann speak in Frankfurt. Evidently, global (FX) traders will continue to keep a close eye at the Brexit sage/drama developing in London. Over the previous days, we had a neutral bias on EUR/USD, expecting more erratic trading in the 1.11/1.15 trading band as many conflicting topics are in play. We maintain that view. Given the potential event risk on Brexit, caution on EUR/USD long exposure remains warranted. That said, the dollar disappointed yesterday. Are investors turning less convinced on the Fed rate hike intentions in 2019?

Sterling was hammered yesterday as the political drama in London suggested that it would be very difficult for PM May to get any Brexit deal approved in Parliament. The risk of outright political chaos is growing. EUR/GBP jumped from the 0.87 area to close the day at 0.8867. The outcome of the Brexit process is impossible to predict with several binary political options possible. Some of these outcomes (e.g. a second referendum) might in the end turn out sterling supportive. However, given almost ‘zero visibility' on UK political developments in the near future, we avoid sterling long exposure.

EUR/USD: euro resists Brexit turmoil quite well

Pivot (invalidation): 113.30

Our preference Long positions above 113.30 with targets at 113.60 & 113.75 in extension.

Alternative scenario Below 113.30 look for further downside with 113.10 & 112.95 as targets.

Comment A support base at 113.30 has formed and has allowed for a temporary stabilisation.

Pivot (invalidation): 1.2835

Our preference Short positions below 1.2835 with targets at 1.2755 & 1.2720 in extension.

Alternative scenario Above 1.2835 look for further upside with 1.2880 & 1.2950 as targets.

Comment As Long as the resistance at 1.2835 is not surpassed, the risk of the break below 1.2755 remains high.