Given the equity market gains seen at the back end of last week, you would have been forgiven for thinking that some form of debt ceiling deal had been, or was close to being agreed as we headed into the weekend, with both US and European markets finishing higher, after some heavy losses in the first part of the week. This always seemed a naive and optimistic hope, given how far apart both parties had been at the beginning of last week, and so it proved with the White House rejecting the Republican proposal to extend the debt ceiling deadline by 6 weeks. It remains increasingly likely that any talks will go to the wire, as we head into day 14, ahead of the 17th October deadline. You would have thought that by now markets would have learned lessons by now when it comes to politicians, who always over promise and under deliver. It almost feels like that US politicians are playing some sick game with the markets, taking investors to the brink, raising expectations and then dashing them again. They should be careful and consider what happened to the boy who cried wolf. The budget talks it would appear are now moving to the Senate in the latest chapter in this long drawn out saga, but even here there appears to be problems, where Democrats are looking to undo sequester cuts from earlier in the year, something Republicans are resisting. While we aren’t exactly back where we started a week ago, last week’s optimism looks set to be tempered somewhat this morning after the weekend setback, but at least the two sides are talking to each other, and while we aren’t exactly at 5 to midnight, we’re pretty close to it. Also out over the weekend we got the latest Chinese trade data for September, which given the recent pickup in economic data expectations had been fairly upbeat and certainly imports appeared healthy, rising 7.4%, above expectations of 7%, suggesting that internal demand still remains robust . Exports on the other hand dropped sharply from 7.2% in August to decline 0.3%, indicating that the recent turmoil in global and particularly emerging markets appears to be acting as a drag on demand for Chinese exports. Inflation for September also pushed up quite sharply to 3.1%, well above expectations of 2.8%, driven largely by high food and vegetable prices, and this will likely inhibit the Chinese authorities from adding further to any stimulus measures to boost an economy that may continue to struggle unless export markets start to pick up. In Europe the only data of note is August industrial production data for August which is expected to show a rise of 0.8%, up from July’s decline of 1.5%, however European finance ministers are meeting in Luxembourg to discuss a range of topics including the problems in Greece, where it is highly likely that the subject of more assistance will probably be on the agenda, as Greek leaders continue to wrestle with the problems of no growth and a growing financing gap that is creating tension with the IMF. EURUSD – the key support area continues to remain at 1.3450/60 area, however the price action appears to have the potential to be forming some form of head and shoulders pattern with a neckline at 1.3500. Given that, while above 1.3500 the potential for a move back towards the highs last week at 1.3645 remains. 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 – while above long term trend line support now at 1.5935 from the 1.4815 lows, the risk remains for a retest above the 1.6020 area. In the event we break through this three month trend line then we have 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 – the 0.8500 area continues to act as a bit of a barrier with the 200 day MA at 0.8524 behind last week’s highs. Given last week’s 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 – the US dollar retested the top of the daily cloud resistance at 98.70 before scaling back in early Asia this morning. After the break higher last week we need to stay 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. CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.