Psychology for major markets 14 Dec

EUR/USD – EUR/USD traded sharply higher after the FOMC as US yields fell, but continues to outperform yield spreads and could be vulnerable if the ECB turns similarly dovish.

USD/JPY – USD/JPY traded sharply lower after the FOMC and the decline in US yields that followed, and downside is still preferred medium term, although a break below 140 may prove difficult short term.

EUR/GBP – EUR/GBP broadly steady but risks may be shifting to the upside. The market pricing in significantly more ECB easing than BoE easing, which may see some correction on the central banks statements.

AUD/USD – AUD strongly higher on the back of more dovish Fed expectations, and 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 - FOMC supportive though bond market reaction may be overdone. Retail sales should be watched for confirmation of the Fed view that the economy is losing momentum in Q4. We do not expect any shocks.