As widely expected, the Bank of England (BoE) made no policy changes at its February meeting.

As we highlighted in our preview, the BoE maintained its neutral stance, as it can move 'in either direction'. This was perhaps more dovish than some market participants had expected, which may explain the depreciation of the GBP and lower UK yields.

We still expect the BoE to remain on hold for the next 12 months.

Notice that the BoE reaction function has changed since the financial crisis, so the BoE puts more weight on growth/unemployment relative to inflation.

Markets have priced in a 40% probability of a hike this year, which we think is too hawkish. A full hike is priced in around October next year.

We still expect GBP crosses to remain volatile in the near term and think GBP will face renewed pressure in coming months as the UK moves towards triggering Article 50 and exiting the EU.

As we think markets price BoE too hawkishly, there is also little support for GBP from relative rates from here.

We target EUR/GBP at 0.88 in 3M.

Daily Pivots: (S1) 0.8467; (P) 0.8530; (R1) 0.8569; More...

EUR/GBP rebounds strongly today but stays in range of 0.8449/8650. Intraday bias remains neutral for the moment. With 0.8655 minor resistance intact, deeper fall is in favor. Corrective rise from 0.8303 should have completed at 0.8851 already. On the downside, break of 0.8449 support should confirm our bearish view and bring resumption of whole corrective fall from 0.9304. In that case, next target is 0.8116 cluster support. However, break of 0.8650 will turn focus back to 0.8851 instead.

In the bigger picture, price actions from 0.9304 are viewed as a medium term corrective pattern. Deeper fall cannot be ruled out yet. But we'd expect strong support from 0.8116 cluster support (50% retracement of 0.6935 to 0.9304 at 0.8120) to contain downside. Overall, the corrective pattern would take some time to complete before long term up trend resumes at a later stage. Break of 0.9304 will pave the way to 0.9799 (2008 high).

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Daily Pivots: (S1) 141.94; (P) 143.03; (R1) 144.44; More...

GBP/JPY drops sharply today but stays in range of 140.43/144.77. Intraday bias remains neutral first. Another rise is mildly in favor as long as 140.43 minor support holds. Above 144.77 will target 148.42 resistance. Break will resume whole rise from 122.46 and target 150.42 long term fibonacci level next. On the downside, however, below 140.43 minors support will turn bias to the downside to extend the pattern from 148.42 with another falling leg, possibly through 136.44.

In the bigger picture, price actions from 122.36 medium term bottom are still seen as a corrective pattern even. Main focus is on 38.2% retracement of 195.86 to 122.36 at 150.42. Rejection from there will turn the cross into medium term sideway pattern. Though, sustained break will extend the rebound towards 61.8% retracement at 167.78.

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Daily Pivots: (S1) 1.0728; (P) 1.0767 (R1) 1.0808; More.....

Intraday bias in EUR/USD remains on the upside as the rebound from 1.0339 extends. Further rally could be seen. However, we're still viewing choppy rise from 1.0339 as a corrective move. Thus, upside should be limited by 1.0872 resistance and bring reversal. On the downside, break of 1.0619 will indicate that such rise is completed and turn bias to the downside for retesting 1.0339 low.

In the bigger picture, whole down trend from 1.6039 (2008 high) is in progress. Such down trend is expected to extend to 61.8% projection of 1.3993 to 1.0461 from 1.1298 at 0.9115. On the upside, break of 1.1298 resistance is needed to confirm medium term bottoming. Otherwise, outlook will stay bearish in case of rebound.

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Daily Pivots: (S1) 0.9889; (P) 0.9922; (R1) 0.9960; More.....

Intraday bias in USD/CHF remains neutral for consolidation above 0.9860 temporary low. Overall, further fall is still expected with 1.0043 minor resistance intact. As noted before, decline from 1.0342 is seen as the third leg of the pattern from 1.0327. Below 0.9860 will target 61.8% retracement of 0.9443 to 1.0342 at 0.9786 and below. Meanwhile, break of 1.0043 will indicate short term bottoming and turn bias back to the upside.

In the bigger picture, rejection from 1.0327 resistance suggests that consolidation pattern from there is still in progress. Fall from 1.0342 is seen as the third leg and retest of 0.9443/9548 support zone could be seen. But we'd expect strong support from there to contain downside. At this point, we're still expecting the larger rally to resume later to 38.2% retracement of 1.8305 to 0.7065 at 1.1359.

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Daily Pivots: (S1) 112.60; (P) 113.27; (R1) 113.92; More...

Intraday bias in USD/JPY stays on the downside as fall from 118.65 is still in progress. Such decline would target 38.2% retracement of 98.97 to 118.65 at 111.13. However, such fall is seen as a corrective move. Hence, we'd expect strong support from 111.13 to contain downside an bring rebound. On the upside, above 115.36 resistance will argue that such correction is finished and turn bias to the upside for 118.65. Break will resume whole rise from 98.97 and target 125.85 key resistance.

In the bigger picture, price actions from 125.85 high are seen as a corrective pattern. The impulsive structure of the rise from 98.97 suggests that the correction is completed and larger up trend is resuming. Decisive break of 125.85 will confirm and target 61.8% projection of 75.56 to 125.85 from 98.97 at 130.04 and then 135.20 long term resistance. Rejection from 125.85 and below will extend the consolidation with another falling leg before up trend resumption.

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USD/CAD has posted considerable losses in the Thursday session, erasing the gains seen in the Wednesday session. Early in the North American session, the pair is trading at 1.2990. On the release front, Unemployment Claims dropped to 241 thousand, short of the forecast of 251 thousand. There are no Canadian releases for the remainder of the week. US employment data will be in focus on Friday, as the US releases Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate.

As expected, the Federal Reserve didn't make any moves on Wednesday, leaving the benchmark interest rate at 0.50%. The markets were hoping to glean something from the rate statement, but the Fed didn't have much to add. The statement was upbeat about the economy and said that inflation continues to move towards the Fed's target of 2 percent. Analysts expect the Fed to raise rates two or three times in 2017, with the odds of a rate hike by June priced in 70%. However, Donald Trump remains an enigma, as his economic policy remains unclear – Trump has promised substantial fiscal spending and tax cuts, but hasn't provided any details. Just a few months ago, a red-hot economy had led to the Fed loudly hinting at gradual rate increases in 2017. However, with the markets showing increasing uneasiness about the new Trump administration, the Fed will likely change gears and adopt a wait-and-see attitude, watching what bills Trump gets through Congress and how the economy responds.

January was kind to the Canadian dollar, as USD/CAD slipped 2.8% percent. Earlier this week, USD/CAD dropped to 1.2965, the pair's lowest level since September 5. Will the Canadian dollar's rally continue into February? There was positive news about the Canadian economy on Tuesday, with the release of Canadian GDP. The economy expanded 0.4% in November, rebounding from a 0.3% decline in October. This figure beat the forecast of 0.3%, and the Canadian dollar moved higher. However, there could be trouble ahead for the Canadian economy. A report by the National Bank Financial Markets says that if Donald Trump's administration implements protectionist policies, Canada's GDP could drop as much as 1.5 percent. Trump has declared he will renegotiate the NAFTA trade agreement, which could have negative repercussions for the Canadian economy. With 70% of Canadian exports headed for the US, any protectionist moves by Trump could unnerve the markets and send the Canadian dollar lower.

The series of pending elections in Europe, ongoing Brexit developments and heightened Trump uncertainties should ensure that political risk remains a recurrent market theme for the first quarter of 2017. Global stocks have been subdued amid the rising market jitters with Asian shares trading mostly mixed during Thursday's trading session. The risk-off trading attitude from Asia should infect European markets with the bearish domino potentially capping gains on Wall Street. It is becoming quite clear that financial markets have been heavily impacted by Donald Trump's repeated verbal assaults and such continues to keep investors on edge. With the clash of optimism and fear fuelling global markets rather than fundamentals, extreme levels of volatility may be expected across the board moving forward.

Dollar remains pressured

The growing threat of Donald Trump moving forward with the protectionist policies while overlooking the proposed fiscal stimulus continues to leave the Greenback vulnerable to heavy losses. Sellers have exploited the lack of clarity provided on the market shaking fiscal promises to attack the Dollar ruthlessly with the Federal Reserve's passive stance in Wednesday's FOMC statement adding insult to injury. Although fundamentally speaking, sentiment remains bullish towards the United States amid the solid economic data, the unknown labelled as Trump could de throne the Dollar. Investors may pay extra attention towards Friday's NFP report which if exceeds expectations could provide the Dollar a lifeline.

From a technical standpoint, the Dollar Index is under pressure on the daily charts. The Index currently resides within a bearish channel while technical lagging indicators such as the MACD point to the downside. Previous support at 100.00 could transform into a dynamic resistance which encourages a further selloff towards 99.00 and potentially lower.

Super Thursday's Sterling selloff

The fact that Sterling was exposed to steep losses on Thursday despite the Bank of England raising the UK growth forecasts for 2017 continues to highlight how the Brexit dilemma has repelled investor attraction towards the currency. Markets were expecting the BoE to tilt to the hawkish camp amid the accelerating inflation but the central bank seemed to be in no rush to take action and such has left Sterling bullish investors empty handed. Uncertainty still remains the name of the game when dealing with the Pound with further selloffs likely as anxiety mounts ahead of the article 50 invoke in early March.

Gains seem to be limited on the Sterling/Dollar with the current downside momentum potentially bringing prices lower towards 1.2500. A sharp breakdown and daily close below 1.2500 should encourage bears to drag the GBPUSD lower back towards the pivotal 1.2350 level. Although the parity dream on the GBPUSD may be pushed back in the longer term, the Brexit woes have made Sterling a seller's dream.

Commodity spotlight - Gold

A vulnerable Dollar coupled with the persistent Trump uncertainties has bolstered Gold's safe haven allure with the metal charging to a fresh three-week high above $1220 during Thursday's trading session. This yellow metal seems to be back in fashion in the short term with further inclines expected as investors scatter from riskier assets to safety. Although there remains a threat of Friday's NFP capping gains on Gold, bulls should remain in control above the $1195 higher low. Technical bullish traders could utilise the breakout above $1220 to propel Gold prices higher towards $1230.

Daily Pivots: (S1) 1.2573; (P) 1.2626; (R1) 1.2710; More...

GBP/USD dropped sharply after hitting 1.2705 and intraday bias is turned neutral again. Overall, rise from 1.1986 is seen as the third leg of the consolidation pattern from 1.1946. Hence, in case of another rise, we'd expect strong resistance from 1.2774 to limit upside and bring down trend resumption eventually. On the downside, firm break of 1.2411 minor support will argue that it's completed and turn bias to the downside for 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

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Sterling tumbles sharply today even though BoE upgraded growth forecasts in the quarterly Inflation Report. The central bank kept key interest rate unchanged at 0.25% and held the asset purchase target at GBP 435b, as widely expected. The central bank maintained a neutral stance and noted that "monetary policy can response, in either direction". Also, it noted that some policy makers are "closer to those limits" referring to the tolerance of overshooting the 2% inflation target. In the latest projections, BoE forecasts inflation to average 2.7% in 2017, 2.6% in 2018 and 2.4% in 2019, November forecast of 2.8% in 2017, 2.7% in 2018 and 2.5% in 2019. Growth is projected to be 2.0% in 2017, 1.6% in 2018, 1.7% in 2019, comparing to November's forecast of 1.4% in 2017 and 1.5% in 2018, 1.6% in 2019. Sterling bulls are clearly dissatisfied with the announcement as the pound weakens notably against Euro and Yen.

On the data front, US initial jobless claims dropped 14k to 246k in the week ended January 28. Challenger job cut dropped -38.8% yoy in January. Non-farm productivity rose 1.3% in Q4 while unit labor costs rose 1.7%. UK construction PMI dropped to 52.2. in January. Eurozone PPI rose 0.7% mom, 1.6% yoy in December. Swiss retail sales dropped -3.5% yoy in December. Japan monetary base rose 22.6% yoy in January. Japan consumer confidence rose 0.1 pt to 43.2 in January. Australia trade surplus widened to AUD 3.51b in December, building approvals dropped -1.2% mom.

Dollar remains generally pressured, except versus Sterling, after yesterday's FOMC announcement. FOMC voted unanimously to leave its policy rate within a target range of 0.50-0.75%. The outcome had been widely anticipated as the Fed just adopted rate hike of 25 bps in December. Only minor changes were seen in the accompanying statement. In short, policymakers retained the stance that future interest rate change would be 'data dependent'. They also reiterated that economic conditions will evolve in a manner that will warrant only gradual increases in the federal fund rate'. Fed's view on the economic outlook has not changed, with overall growth remaining 'moderate' and the balance of risks 'roughly balanced'. The focus will now turn to Chair Yellen's Congressional testimony on February 14-15. During the 1.5 week period, we would receive the employment report for January. More in Fed Upbeat About Employment, Next Rate Hike Data Dependent.

GBP/USD Mid-Day Outlook

Daily Pivots: (S1) 1.2573; (P) 1.2626; (R1) 1.2710; More...

GBP/USD dropped sharply after hitting 1.2705 and intraday bias is turned neutral again. Overall, rise from 1.1986 is seen as the third leg of the consolidation pattern from 1.1946. Hence, in case of another rise, we'd expect strong resistance from 1.2774 to limit upside and bring down trend resumption eventually. On the downside, firm break of 1.2411 minor support will argue that it's completed and turn bias to the downside for 1.1946 low.

In the bigger picture, fall from 1.7190 is seen as part of the down trend from 2.1161. There is no sign of medium term bottoming yet. Sustained trading below 61.8% projection of 2.1161 to 1.3503 from 1.7190 at 1.2457 will target 100% projection at 0.9532. Overall, break of 1.3444 resistance is needed to confirm medium term bottoming. Otherwise, outlook will remain bearish.

Economic Indicators Update

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