Psychology for major markets 19 Dec
JPY falling sharply after BoJ
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EUR/USD – EUR/USD slipped 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, but 1.09 level may hold as long as equities remain steady
USD/JPY – USD/JPY gaining sharply after the BoJ left policy and guidance unchanged at the December meeting. Yield spreads still don’t support the gains, however, and 145 likely to prove toppy.
EUR/GBP – EUR/GBP hovering close to 0.86. The market continues to price relatively hawkish BoE policy, and GBP likely to remain firm as long as this continues, but limited scope for further spread widening in GBP’s favour suggests downside unlikely to extend beyond the 0.8492 August low.
AUD/USD – AUD 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 speakers suggesting 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.