Psychology for major markets 15 Dec
USD falls against European currencies as central banks lean against early rate cuts.
EUR/USD – EUR/USD extended gains as the ECB statement was seen as more hawkish than expected, playing down any chance of an early cut in rates. But EUR/USD still looks a little stretched above 1.10 given current yield spreads.
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 is pricing in significantly more ECB easing than BoE easing, and the ECB statement suggests they don’t see things the same way.
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 - Strong retail sales and initial claims data question the Fed's view that the economy is slowing in Q4, which could restrain the post-FOMC rally, though downside risks are limited unless UST yields spike higher.