Psychology for major markets May 21st

EUR/USD – Holding in the mid-1.08s with the USD tone generally softer as US yields edge lower. Upside now favoured especially if recent evidence of European recovery gets further support.

USD/JPY – Downside risks persist on declining yield spread and threat of BoJ intervention, but JPY still soft in quiet markets as carry trades remain favoured. Move into the 140s possible if US yields hold at lower levels and volatility picks up.

EUR/GBP - EUR/GBP dropping back from 0.860, but chance of June rate cut still priced as a 50-50 call.  Focus on CPI data this week as potentially the key driver of the rate decision.

AUD/USD – Moved above .66 supported by better China sentiment, and tested resistance at 0.67, but knocked back by weaker regional sentiment. More US yield declines may be required for a break higher.

EUR/CHF – New 1 year high reached at 0.9894, and further upside still possible if expectations of Eurozone growth continue to improve.

Equities – Regaining momentum after FOMC and payrolls. Risk premia are still low and growth numbers solid despite some softer data, so a further decline in yields could see a break of the highs.