Psychology for major markets 18 Dec

EUR/USD – EUR/USD slipping back from 1.10 after a softer than expected preliminary December PMI. 1.10 looks likely to be toppy near term despite the attempts by the ECB to maintain a hawkish stance.

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 continues to edge lower as UK PMIs outperform Eurozone. But there is limited scope for further rises in yield spreads, so moves below 0.8550 are likely to prove difficult.

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 – Fed's Williams suggests 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.