Psychology for major markets 31 Jan

EUR/USD – EUR stabilising above 1.08 with an April ECB rate cut already fully priced in. FOMC the focus, with downside risks for EUR/USD if the Fed sounds a little less dovish after recent strong US data.

USD/JPY – USD/JPY looking stretched as 10 year yield spreads continue to fall to their lowest since January 3, when USD/JPY was trading near 142. Focus on FOMC where unchanged US yields would suggest scope for JPY gains.

EUR/GBP – Underlying sentiment GBP positive as UK inflation is perceived to be more persistent than elsewhere, and UK PMIs continue to outperform, but BoE may turn more dovish tomorrow, suggesting upside risks.

AUD/USD – Solid global equity performance helping the AUD to recover after recent weakness due to China concerns, despite softer CPI data.

USD/CHF – CHF benefiting from Middle East unrest, but a retest of the lows below 0.93 would likely require something that significantly undermined confidence and growth expectations.

Equities – US market remaining close to all time highs but may be vulnerable to any decline in easing expectations.  FOMC therefore could prove negative.