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Cable holds within narrow range in early Wednesday's trading, after recovery attempts on Tuesday were strongly rejected, but downside was limited by daily cloud base. Technical studies on daily chart are gaining fresh negative momentum and MA's are in bearish setup, as 55SMA continues to cap after being broken on Monday. On the other side, oversold slow stochastic warns of consolidative / corrective action, but so far without firmer signal. Politics are once again seen as pound's key driver, with Brexit story getting more complicated by conflict within PM May's Conservative party as many oppose her Brexit plan and May will address party's lawmakers today, in attempt to calm growing tensions. The meeting could be crucial for May's leadership and traders closely watch the situation, as slight optimism on news on Tuesday that the EU is preparing new plan to offer solution for the Irish border problem, is fading. Bearish signals could be expected on firm break below key supports at 1.2921 (03/04 Oct lows) and 1.2904 (Fibo 61.8% of 1.2661/1.3297), which would signal bearish continuation towards 1.28 zone (Fibo 76.4% at 1.2811 and 05 Sep trough at 1.2785). Initial bullish signal could be expected on break and close above 55SMA (1.2994) and psychological 1.30 barrier, which would sideline immediate bearish threats and signal recovery. Converged daily MA's at 1.3071/95 zone mark pivotal barriers, break of which is needed to neutralize downside risk and shift focus to the upside.

Res: 1.2994, 1.3012, 1.3043, 1.3071
Sup: 1.2936, 1.2921, 1.2904, 1.2811

France PMI manufacturing dropped to 51.2 in October, down from 52.2 and missed expectation of 52.4. That's also a 25-month low.

PMI services rose to 55.6, up from 54.8 and beat expectation of 54.7, and hit a 4-month high. PMI composite rose 0.3 to 54.0.

Commenting on the Flash PMI data, Sam Teague, Economist at IHS Markit said:

"October data signalled a mixed picture for the French private sector. On one hand, service sector activity growth accelerated to a four-month high thanks to stronger new business growth. On the other hand, the manufacturing sector shifted down a gear in October, as firms reported the first fall of output for over two years.

"Anecdotal evidence pointed towards a weaker automotive sector. This helped to explain another deterioration in manufacturing exports and the weakest level of business confidence among manufacturers for 28 months, which was partly linked to worries across the automotive supply chain.

"Nonetheless, job creation accelerated to a six-month high across the private sector, partly due to stronger inflows of new business. In spite of improved employment and output growth, capacity pressures remained elevated, particularly in the service sector.

"On the price front, cost pressures continued to build amid higher fuel and wage bills. The latest data did suggest a slight respite for French businesses, however, with input price inflation easing marginally from September's eight-month high."

Full release here.

XAUUSD (1232.45): Gold prices advanced strongly on the day to test the resistance level of 1238.00 before promptly easing back. The upside gains came as the precious metal managed to break past the consolidation area around 1225.35. Currently, following the modest pullback, gold prices could once again attempt to break out from this level. Failure to do so could put Gold prices back in the range of 1238 and 1225.35. There is a risk that gold prices could ease back to 1207 if it fails to find support at 1225.35.

GBPUSD (1.2988): The GBPUSD currency pair was seen recovering off Monday's lows yesterday. However, price action briefly touched the previously breached support area of 1.3054 - 1.3028 before easing back on the day. As long as the resistance level is not breached, the GBPUSD currency pair could maintain the downside bias. The currency pair remains at risk of a decline to 1.2808. But for the most part, the price action could be dictated by Brexit related news.

European Council President Donald Tusk said EU is ready to extend the transition period after Brexit in March, if UK requests for it. For now, "it was made clear by the UK that more time is needed to find a precise solution". Hence, "there is no other way but to continue the talks" with UK.

Nonetheless Tusk also said "I stand ready to convene a European Council, if and when the Union negotiator reports that decisive progress has been made", referring to the possibility of an extra summit on November 17-18.

EURUSD (1.1472): The EURUSD currency pair turned flat on the day closing with a doji. Price action continues to consolidate around the support area of 1.1435 - 1.1460. The sideways range for the common currency could remain in place until tomorrow's ECB meeting. The EURUSD will need to break out from the range that it has maintained for the most part this week. Given that the support level has held the declines firmly so far, price action could be seen attempting to break out to the upside.

In Italy, Deputy Prime Minister, leader or eurosceptic League, Matteo Salvini pledged that the country won't change the 2019 budget despite rejection by the European Commission. He emphasized that "Italians come first" and "Italy no longer wants to be a servant to silly rules." And he also explained that Italy has to "do the opposite" of previous government to boost growth and lower debt.

European Economic Commissioner Pierre Moscovici said the EU and Italy are "still in a constructive dialogue even if it is within a clear framework... My door is always open and I hope that the Italian government will listen to this message."

The U.S. dollar maintained its dominance on Tuesday, but price action was seen easing slightly following the gains. On the economic front, data was relatively quiet. The rising global tensions saw the markets having a lower risk appetite. Gold prices managed to rise along with investors seeking the safe haven of the yen.

The euro currency fell to an intraday low before recovering. Data showed that the Eurozone's consumer confidence improved slightly to -2.7 from -2.9 previously. The European Commission was also seen rejecting Italy's budget but the Italian Prime Minister, Giuseppe Conte remarked that there was no Plan B for its budget.

The British pound was seen trading volatile on the day after news reports suggested that the EU could offer the UK a customs union.

The economic data picks up steam with today's European session marking the release of the flash manufacturing and services PMI data. The Eurozone's flash manufacturing PMI is expected to ease slightly to 53.1 from 53.2 in September while services PMI is forecast to fall back to 54.5 from 54.7 previously.

The NY trading session will see the release of the Bank of Canada's monetary policy statement and interest rate decision. The BoC is widely expected to hike rates by 25 basis points at today's meeting. This would bring the interest rates to 1.75%.

Later in the day, the U.S. new home sales data will be coming out. Economists polled expect new home sales to rise slightly to 630k from 629k the month before. Fed members, Bostic and Mester, are due to speak later in the evening.

• Rates: EMU PMI's to add to growth worries?
  Global core bonds profited from safe haven flows as stock markets took a scare while Italian BTP's faced new selling pressure as the EU asked changes to the draft budget. EMU PMI's could add to global growth worries today, suggesting stock markets aren't out of the woods yet. Key technical yield support levels, might cap intraday core bond gains.
• Currencies: Dollar maintains recent gains, but no convincing rally yet
  Yesterday, trading in the major USD cross rates mostly held to established ranges. The US currency preserves some kind of ‘by default' bid, but USD bulls also show no strong conviction. Today, we don't see a compelling factor to change the overall picture of USD trading. Sterling traders keep an eye at yet another key Brexit meeting within the UK Conservative party

The Sunrise Headlines

• US equity markets opened yesterday's session with substantial losses, but recovered (partially) throughout the day. Asian markets opened mixed this morning with Chinese indices outperforming.
• President Trump called the Federal Reserve the biggest risk to the US economy as chairman Powell continues raising interest rates. He added that he is maybe regretting the Fed nomination of Mr. Powell.
• The European Union officially rejected the Italian budget proposal, saying it had no alternative but to demand changes. Italy has now three weeks to submit a new budget, but already commented it would “not give up” on its plans.
• Raphael Bostic, the normally rather dovish Atlanta Fed president, said he supports further gradual interest rate hikes and warned that too much stimulus risks overheating the economy and rising inflation (expectations).
• President Trump said the Khashoggi murder was the “worst cover-up ever” by Saudi Arabia. Congress will discuss adequate efforts to punish the country and will revoke the visas of the people responsible of the murder.
• The Japanese manufacturing PMI rose from 52.5 in September to 53.1 in October. The rebound is the strongest improvement in six months suggesting the slowdown in Q3 GDP might be temporary
• Today's eco calendar contains EMU and US PMI's. The Bank of Canada is expected to hike rates while the Riksbank will stay put. The Fed releases its Beige Book with governors George, Bullard, Mester and Bostic on the wire

Currencies: Dollar Maintains Recent Gains, But No Convincing Rally Yet

Dollar holding tight ranges

On Tuesday, EUR/USD hovered in a relatively tight range approximately between 1.1440 and 1.1495. Initially, negative sentiment from Asia spilled over to Europe and weighed on the euro. During the day, the decline on equity markets slowed and so did the euro. The rift between the EU and Italy on the Italian budget will probably continue for a while as the EU formally rejected the country's budget proposal. However, this formal step in the procedure had little additional negative impact on the euro. Later, US yields reversed part of an earlier decline, amongst others on rather hawkish Fed comments (Bostic). The impact on the dollar was limited. EUR/USD finished the day at 1.1471. USD/JPY closed at 112.40, within established ranges. This morning, tension on Asian equity markets show tentative signs of easing, with China outperforming. The yuan (USD/CNY at 6.9370) gains a few ticks against the dollar. USD/JPY (112.60) trades with a cautiously positive bias. EUR/USD shows no clear trend, holding in the 1.1470 area. Today, the eco calendar contains the first estimate of the EMU October PMI's. A modest further erosion is expected. This shouldn't be a big surprise for the euro anymore. US data are probably of second tier importance. Fed speakers, US corporate earnings and the Fed Beige Book are wildcards. Of late, the dollar slightly outperformed other majors including the euro. However, this looks as some kind of ‘by default' choice. Conviction of USD bulls also wasn't really strong. Of late, we held a cautious USD positive bias (negative EUR/USD). We don't see a compelling reason to change tactic. That said, EUR/USD recently failed to break below the 1.1432 support. If Italy would move a bit to the background, downside pressure on the euro might also ease. With multiple event risks on both sides of the Atlantic, sideways trading in the 1.14/1.16 area might be on the cards.

On Tuesday, there were again rumours on proposals (from the EU) to unlock the UK-EU Brexit negotiations. However, any positive impact on sterling was limited/temporary as markets first want clarity on how the rift within the UK conservative party will be solved. EUR/GBP closed the session on the 0.8835 area. Today, the focus will be on a new meeting of UK PM May with the MP's of her party (1922 Committee). Question is whether this meeting will result in a clear, unequivocal Brexit view for the party. As long as UK political uncertainty remains the key obstacle for a Brexit deal, we stay cautious on sterling

EUR/USD: dollar maintains benefit of the doubt, but USD bulls show no strong conviction either

Daily Pivots: (S1) 145.39; (P) 145.90; (R1) 146.50; More...

As noted before, GBP/JPY's break of 145.67 resistance turned support suggests that whole rise from 139.88 has completed at 149.70 already. Intraday bias is staying on the downside for 142.59 support first. Break will target 139.88 low next. On the upside, break of 147.57 resistance is needed to indicate completion of fall from 149.70. Otherwise, near term outlook will now stay mildly bearish even in case of recovery.

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) would 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.