Psychology for major markets 20 Dec

EUR/USD – EUR/USD slipped back from 1.10 after a softer than expected preliminary December PMI, but has bounced since. 1.10 looks likely to be toppy near term despite the attempts by the ECB to maintain a hawkish stance, but 1.09 level is likely to hold as long as equities remain firm.

USD/JPY – USD/JPY gaining sharply after the BoJ left policy and guidance unchanged at the December meeting. Yield spreads still don’t support the gains, however, and 145 likely to prove toppy.

EUR/GBP – EUR/GBP hovering close to 0.86. The market continues to price relatively hawkish BoE policy, and GBP likely to remain firm as long as this continues. Little reason to expect GBP weakness on UK CPI, which is likely to remain high relative to the US and Eurozone.

AUD/USD – AUD still has scope for gains if risk appetite continues to hold up, with the RBA less likely to turn dovish than the Fed or European central banks.

Equities – Fed speakers suggesting markets over-reacted to FOMC though downside risks to equities are modest without a change in the data tone or a sharp spike in UST yields.