European markets look set to build on yesterday's strong gains after US markets had their second best day this year on optimism that politicians on Capitol Hill are close to coming to a temporary agreement to extend the deadline for raising the debt ceiling, without any preconditions by six weeks after President Obama indicated he would consider the proposal.
The President did indicate that he would have to look at the detail of any proposal, and while he would prefer a much longer term extension, given the stakes at play, was prepared to look at the detail of the Republican proposal.
On the positive side of things the fact that the two sides are talking to each other is progress and as we all know jaw-jaw is better than war-war.
While averting an imminent default, any agreement would not re-open the government, or repair the damage being done to the US economy, caused by the current shutdown, which makes yesterday's market rally somewhat irrational, even if it is understandable in the context of the fact that politicians are actually starting to wake up the consequences of their actions, and inching back from the abyss of a potential default.
A look at the opinion polls may have also been rather sobering for the Republicans with a majority of Americans blaming them for the log jam, which may explain the slight softening of their positions.
As we head into day 11 and the weekend, one thing is certain, there is bound to be a lot more twists and turns in this saga over the next few days.
In any case an agreement to extend the deadline also only serves to shift the debate nearer to the Thanksgiving break, which would obviously mean potentially another six weeks of this political nonsense.
With little in the way of economic data being released one can only guess at the damage being done to the US economy, but yesterday's jobless claims did offer a little clue, with a sharp jump to 376k, a six month high.
Today's University of Michigan consumer sentiment indicator for October is the only US data which is likely to be released today and we could expect to see a significant dent put in this particular indicator given the current environment. Expectations are for a drop from 77.5 to 77.2, but it wouldn't be too much of a shock to see a larger fall.
The G20 and IMF meetings currently being held in the US are all expected to play second fiddle to the shenanigans going on Washington.
EURUSD - it is taking a while to unfold but we do appear to be slowly heading towards key support at the 1.3450/60 area. Last week's bearish daily candle does appear to be weighing down on the price action. Only above the 1.3710 level would argue for a move towards the 1.4000 level. A break below the 1.3450/60 area which acted as support last week would signal a move towards the 1.3320/30 level.
GBPUSD - the pound continues to hold above the long term trend line support now at 1.5930 from the 1.4815 lows. A break through this three month trend line opens up the potential for further losses towards 1.5700, 38.2% retracement of the 1.4815/1.6260 up move. To stabilise we need to see a move back through 1.6020, to retarget the 1.6100 area.
EURGBP - this week's break above the down trend line resistance at 0.8470 from the 0.8760 highs now targets the 0.8500 area, but it is struggling to overcome it. Just above here we also have the 200 day MA at 0.8521. Given this unexpected break higher the euro needs to hold above 0.8420 to stabilize and signal a move higher. A move back below the 0.8420 area retargets the 0.8280 level.
USDJPY - yesterday's move above trend line resistance at 97.90 from the highs in September at 100.60 appears to have stabilized the US dollar, but we now need to hold above 97.60 to kick on and retarget the 100.00 area. A move back below the 97.60 area retargets the 200 day MA at 96.85.
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