Psychology for major markets 7 Dec

EUR/USD – EUR/USD should have scope to extend below1.08, with yield spreads suggesting scope to 1.07. While the strong JPY has provided some short term support, USD upside is limited by lower yields after weak JOLTS data for now. Focus on Friday’s employment report

USD/JPY – USD/JPY tumbled lower on Ueda’s comments, but was already ripe for a decline after the yield spread moves seen in recent weeks. Scope to 143 based on current yield spreads.

EUR/GBP – EUR/GBP risks are on the downside with the market paring back UK rate cut expectations in response to hawkish BoE comments. Longer run yield spread correlations still suggest scope for GBP gains if underlying concerns about the economy fade.

AUD/USD – AUD falling back after less hawkish commentary following unchanged rate decision at the RBA meeting, with weak Chinese equity performance also a drag. Scope now for more corrective activity towards 0.65, but JPY strength proving supportive short term.

Equities – Cautious tone ahead of Friday's employment data and then CPI and the FOMC meeting next week. We do not expect these key events to significantly undermine the market.