The US congress postponed its vote on the Republican plan to raise the national debt ceiling without giving a date for when it will actually occur.  Equity markets and risk assets dropped heavily on the news as this only increases the level of uncertainty that is currently being seen.  In Asian trading, the EUR/USD range was seen at 1.4280-1.4360 with the USD/JPY trading lower at 77.40-77.90.  Congressional Republicans have scheduled a Friday meeting for 15: 00 GMT, so at the very least markets are operating on the assumption that we will not be seeing a vote before then.

The actual vote, however, is unlikely to bring any immediately stabilizing effects, as the Democrat-dominated Senate has made it clear that the Republican plan will not pass their vote.  In macro data, US jobless claims dropped to 398,000 and Pending Home Sales rose 2.4% on a monthly basis (estimates were for a drop of -2.0%).

The numbers are mildly encouraging, so what this tells us is that even in light of the massively negative headlines that are taking most of the focus, the effects have yet to make their way into the economic data.  Market attention will continue to center on the debt ceiling debate, but there will be some macro data as well, with US GDP figures expected to rise 2.0% on a quarterly basis. Chicago PMI is also scheduled for today.

Moody’s placed the Spanish credit rating on review, as the current rating of Aa2 could be downgraded later.  Moody’s main argument for this was that government financing is showing new weakness and the rise in borrowing costs for treasuries could remain elevated.  German unemployment data for the month of July dropped by 11,000, which was less than estimates of -15,000.  The unemployment rate remained steady at 7.0%.

In Japan, we are continuing to see comments from the Finance Minister (Noda), which is suggestive of an increased worry over the value of the Yen.  The price extremes that being seen now will have negative effects on export companies at a time when the nation is still struggling to rebuild its infrastructure in many major cities.  BoJ members have been hinting at currency intervention but the market has yet to find any credibility in the comments as USD/JPY continues to grind lower.  At this stage, it would not be surprising at all to see the central bank start selling Yen but there is little evidence to suggest that these actions would have any significant effects over the longer term.

Technicals:

The GBP/JPY is continuing its downtrend on the weekly charts, with prices currently pressuring support at 126.35.  Daily charts are now showing a well-formed downtrend channel so any rallies are expected to be met with strong selling pressure.  First resistance (sell zone) comes in at 128.30, followed by 130.15.  This latter level also coincides with Fib resistance so any break above here will take pressure off of the downside for the short term.  We are currently targeting new lows below 122.40 in the coming weeks.

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