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Asian shares were mostly higher this morning as Chinese indexes rallied more than 4% on verbal support from the country's top officials.

Although the positive momentumfrom Asia has seeped into European markets, gains remain threatened by fragile risk sentiment. With investors bombarded by geopolitical factors such as trade tensions, Italy's budget woes and Brexit-related uncertainty, caution is set to prevail this week. Global equity bulls still have an opportunity to re-enter the scene on the back of robust corporate earnings. However, expectations of higher US interest rates, global growth fears and geopolitical tensions all present downside risks to equity markets across the world.

Trade tensions sizzle in the background

US-China trade developments were back in focus following reports of White House economic advisor Larry Kudlow accusing Beijing of doing “nothing” to ease trade disputes ahead of a G20 meeting in Argentina next month.

This development has not only reduced optimism over the United States and China finding a middle ground on trade but raised prospects of the US next year boosting the tariffs on $200 billion of Chinese imports from 10% to 25%.

With a full-blown trade war between the world's two largest economies presenting a significant threat to global growth and stability, sentiment is poised to remain fragile.

Markets eye Italy budget

Italy's budget woes with the European Union enters a critical phase today as Rome faces a noon deadline to explain why it is in breach of EU fiscal rules. With the Italian government bracing for the EU to reject its 2019 budget on Tuesday, the Euro is likely to take a hit. Uncertainty in Italy remains one the major geopolitical factors weighing on global sentiment and denting investor confidence.

ECB meeting on Euro's radar

All eyes will be on this week's European Central Bank meeting which is expected to conclude with monetary policy left unchanged.

With no rate moves expected, investors should not be quick to label this meeting as a non-event. Given the growing uncertainty revolving around the political situation in Italy, there will be an extra focus on Mario Draghi's press conference. It will be interesting to hear Draghi's thoughts on the developments in Italy and possible impacts theymay have on the Eurozone economy. If the central bank head strikes a cautious and dovish tone, the Euro will most likely depreciate.

Taking a look at the technical picture, the EURUSD is trading back above the 1.1520 level this morning on the back of Dollar weakness. Intraday bulls could push the currency pair towards 1.1580 in the near term.

Focus on US Q3 GDP growth

The main event risk in the United States this week will be the first reading of third quarter GDP data scheduled for release on Friday. US economic growth is expected to have expanded 3.3% during the third quarter of 2018, slower than the 4.2% achieved in Q2. An upside surprise on GDP growth has the potential to boost buying sentiment towards the Dollar and reinforce market expectations of higher US interest rates.

The Euro holds steady on Monday and moved higher in early European trading, after trading within narrow range in Asia.

Fresh advance extends Friday's rally and cracked daily cloud base (1.1545) and could attack next pivotal barriers at 1.1560/70 (20SMA/daily cloud top).

Friday's recovery formed bullish outside day, which was positive signal for further upside after bears were contained at key 1.1432 support (09 Oct low) and subsequent bounce generated initial signal of double-bottom formation.

Strengthening momentum is attempting to break into positive territory on daily chart and supports, along with north-heading slow stochastic.

Bulls need to clear 20SMA and break above cloud to confirm reversal and turn near-term focus higher, however, plethora of barriers within 1.1580/1.1620 zone (55/30/100SMA / 16 Oct high / Fibo 50% of 1.1815/1.1432), could be strong obstacle.

Only sustained break above 1.1620 would confirm double-bottom and signal stronger recovery.

The downside would remain vulnerable if fresh bulls fail to close above 20SMA / daily cloud top.

Developments around Brexit and concerns over Italy's budget plan, which was heavily criticized by the EU, are key fundamentals for the single currency, with focus turning to EU PMI data on Wednesday and the ECB's policy meeting on Thursday.

Res: 1.1560, 1.1570, 1.1600, 1.1621
Sup: 1.1533, 1.1498, 1.1463, 1.1432

EUR/USD is apparently lifted by the sharp fall in Italian yield today, the the rebound quickly fades.

10 year yield hit as low as 3.318 but recovers. It's now trading at 3.437, down -1.444. It's notably lower than last week's high of 3.784. However, it should also be noted that German 10 year yield is now at 0.469, up 0.006. German-Italian spread 297, below 300 but still close to 300. That is, yes, concerned eased, but sentiments haven't really turned around. The next move will depend on the response from Italy to EU and then EU's counter response, regarding the budget.

EUR/USD

Current level - 1.1511

A reversal has been confirmed at 1.1430 failure and the bias is positive, for a rise towards 1.1610 peak. Initial intraday support lies at 1.1480.

USD/JPY

Current level - 112.64

The bias is positive, for a break through 112.80, en route to 113.50 zone.

GBP/USD

Current level - 1.3066

The reversal at 1.3010 signals a positive bias, for a rise towards 1.3170 zone. Initial support lies at 1.3050.

Pivot (invalidation): 112.35

Our preference Long positions above 112.35 with targets at 112.75 & 113.00 in extension.

Alternative scenario Below 112.35 look for further downside with 112.20 & 112.05 as targets.

Comment The RSI calls for a new upleg.

Pivot (invalidation): 1.3045

Our preference Long positions above 1.3045 with targets at 1.3075 & 1.3100 in extension.

Alternative scenario Below 1.3045 look for further downside with 1.3015 & 1.2985 as targets.

Comment The RSI advocates for further upside.

Pivot (invalidation): 1.1485

Our preference Long positions above 1.1485 with targets at 1.1530 & 1.1545 in extension.

Alternative scenario Below 1.1485 look for further downside with 1.1455 & 1.1435 as targets.

Comment Technically the RSI is above its neutrality area at 50.

Pivot (invalidation): 5.6050

Our preference Long positions above 5.6050 with targets at 5.6950 & 5.7700 in extension.

Alternative scenario Below 5.6050 look for further downside with 5.5600 & 5.5150 as targets.

Comment The RSI lacks downward momentum.

Pivot (invalidation): 0.7120

Our preference Short positions below 0.7120 with targets at 0.7090 & 0.7070 in extension.

Alternative scenario Above 0.7120 look for further upside with 0.7135 & 0.7150 as targets.

Comment Technically the RSI is below its neutrality area at 50.

Pivot (invalidation): 1.3075

Our preference Long positions above 1.3075 with targets at 1.3130 & 1.3150 in extension.

Alternative scenario Below 1.3075 look for further downside with 1.3050 & 1.3020 as targets.

Comment The RSI lacks downward momentum.