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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Thursday February 2: Five things the markets are talking about

For anyone looking for significant clues to the future of Fed policy, yesterday's FOMC statement was a real letdown. The announcement mostly reflects U.S policy makers' caution in a time of political upheaval.

Nevertheless, the Fed indicated that they remain on track to gradually raise short-term interest rates this year, but gave no hint about when the next increase might come.

The official statement shows that U.S economic activity has continued to expand at a moderate pace, with jobs gains remaining solid and unemployment atop of its recent low. Will tomorrow's non-farm payroll (NFP) report (08:30am EST) continue to support this? Officials reiterated that they expect only "gradual" increases in the fed-funds rate.

Fed fund futures now suggest a +69% probability of at least one rate increase by June - about the same level before the announcement - and a +71% chance of two increases by December.

1. Mixed responses from global stock indexes

For the time being, stronger U.S data continues to support 'risk assets,' however, investor uncertainty and concerns over Trump's policies is putting global markets on edge.

Overnight in Asian, equities touched a four-month high as the dollar underperformed after the Fed stuck to its mildly upbeat economic view but gave no hint of accelerating rate hikes.

MSCI's broadest index of Asia-Pacific shares, ex-Japan, was up +0.15% - touching its highest level since mid-October. However, gains were not broad-based in the region, with Hong Kong's Hang Seng slipping -0.6% and Singapore down -0.8%. Even Japan's Nikkei lost -1% on the back of a stronger yen (¥112.37).

In Europe, equity indices are trading mixed ahead of the BoE's policy decision (07:00am EST) and a speech by ECB President Draghi scheduled at 07:15am EST. Financial are again leading the sector losses in the Eurostoxx while the FTSE 100 is being weighed by tech shares. Energy, commodity and mining stocks are providing some support in the index.

U.S equities are currently set to open a tad softer (-0.4%).

Indices: Stoxx50 -0.3% at 3,247, FTSE flat at 7,106, DAX -0.4% at 11,616, CAC-40 flat at 4,793, IBEX-35 +0.2% at 9,345, FTSE MIB +1.1% at 18,940, SMI -0.6% at 8,281, S&P 500 Futures -0.4%

2. Oil prices steady, gold still has support

Oil prices are steady ahead of the U.S open despite a sharp rise in U.S. crude and gasoline stockpiles yesterday. The market negatives continue to be mitigated by evidence that OPEC and other big exporters are cutting production.

Brent crude is up +5c cents at +$56.85 a barrel after settling up +$1.22 in the previous session. U.S. light crude (WTI) is down -5c at +$53.83 after climbing +$1.07 yesterday.

Weekly U.S. EIA inventories rose by more than double (+6.5m barrels to +494.8m) what was expected for the week ended Jan. 27, while gasoline stockpiles also increased sharply (+3.9m barrels to +257.1m).

Note: Oil stored at Cushing, Okla., the delivery point for U.S. stocks, decreased by -1.2m barrels to +64.1m.

Gold has edged up overnight (+0.4% to +$1,214.67 an ounce), resuming its gains after halting a three-day rally on Wednesday, on the back of a weaker dollar.

Platinum has printed a three-month highs this morning at +$1,004.60, its best since Nov. 10, 2016, while silver touched a 2-month high of +$17.63 in yesterday's session.

3. U.S yields fall on Fed decision

It was natural to see the U.S bond market gets a boost as the latest Fed policy statement suggests the Fed is not in a rush for the next rate hike given the fiscal policy uncertainty.

The Fed called the near-term risks to the economic outlook 'roughly balanced' and indicated that they expect "only gradual increases" in rates. That suggests that the Fed may wait for a few more months and raise rates in the summer.

U.S 10's are trading at +2.475% vs. +2.492% before yesterday's Fed announcement. The policy sensitive two-year yield is +1.22% vs. 1.244%.

Given the lack of any new direction from the Fed, markets are likely to watch non-farm payrolls closely this week, and a stronger number could increase the probability of a March hike.

Elsewhere, Japanese 10-year yields rallied +2bps to +0.12%. That's the highest print since the BoJ introduced negative interest rates over 12-months ago.

4. Dollar bulls continued to be squeezed

The FX volatility seen over recent days appears to have calmed, at least for the moment.

Currently, the 'big' dollar is maintaining its soft tone following yesterday's FOMC statement and recent rhetoric from Trump officials. The Fed seems not to be in any hurry to adjust rates - market expectations are being slashed with dealers now pricing the possibility of a March hike at +18% odds, down from +28% prior the statement.

The pound (£1.2697) trades atop its two-month highs. No changes are expected from the BoE (see below) - officials are likely to reinforce their neutral policy stance and focus on Brexit risk and uncertainties. USD/JPY (¥112.35) continues to test key chart support ahead of the psychological ¥112 handle. Analysts believe a break of this and the market will be eyeing ¥111.00 rather quickly. Europe's single unit (€1.0808) is holding up at the upper end of this week's range.

One of the other big movers overnight has been the AUD (A$0.7670). It has found support after reporting a record trade surplus for the month of December (+A$3.5B vs. +A$2.0B e), supported mostly by the rise in prices of iron ore and coal to China.

5. Super Thursday - BoE to be all words no action

All eyes are on the Bank of England (BoE) interest rate decision and the presentation of its quarterly forecasts. Although rates are expected to be left "unchanged," the BoE is likely to upgrade its growth and inflation forecasts.

The Inflation Report needs to reflect the more upbeat U.K activity data since November. Therefore, fixed income dealers expect above-target inflation to remain a feature of the updated forecasts, thus making it a tad difficult for Governor Carney to strike a "dovish" tone this morning.

Note: More inflation chatter will lead to more talk of interest rates increase if the U.K. economy continues to perform well, however, the neutrals should expect this argument to be somewhat counterbalanced by concerns about Brexit - perhaps an argument for sterling gains to be somewhat capped?

USD/JPY has posted losses in the Thursday session, erasing the gains from Wednesday. Currently, the pair is trading at 112.30. On the release front, Japanese Consumer Confidence remains weak, as the reading of 43.2 missed the estimate of 43.7. In the US, today's highlight is Unemployment Claims, with the markets expecting claims to drop to 251 thousand. Employment data will be under the spotlight on Friday, as the US releases Nonfarm Payrolls, Average Hourly Earnings and the unemployment rate.

There were no surprises from the Fed on Wednesday. The Fed opted for the sidelines, 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, the big question mark for the markets and the Fed is one Donald Trump, who 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 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.

President Donald Trump has not hesitated to butt heads with world leaders, and on Tuesday it was the turn of China, Germany and Japan, as Trump accused them of devaluating their currencies in order to gain an unfair trade advantage. On Wednesday, Japan flatly denied the claim of currency manipulation, saying that Japan's monetary policy was aimed at curbing deflation and not lower the value of the yen. Trump and Japanese Prime Minister will meet in Washington on February 10, and it's a sure thing that currency policy will be high up the list on the agenda of the meeting. The BoJ sent off its own warning about currency manipulation when the dollar pushed above the 120 level, but BoJ Governor Haruhiko Kurodo recently stated that the bank does not have a target for the currency.

EUR/USD has posted slight gains on Thursday, as the pair trades at the 1.08 level. Earlier in the day, the pair rose to 1.0818, its highest level since December 5. On the release front, Eurozone PPI improved to 0.7%, above the forecast of 0.5%. Later in the day, ECB President Mario Draghi will address a conference in Slovenia. In the US, today's highlight is Unemployment Claims, with the markets expecting claims to drop to 251 thousand. Employment data will be under the spotlight 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.

The German economy, the largest in Europe, is often viewed as the bellwether of the strength of the Eurozone economy. This week's data out of Germany has been a mixed bag. There was positive news on Wednesday, as German Manufacturing PMI improved to 56.5, pointing to solid expansion. This was just shy of the estimate of 55.5. Earlier in the week, unemployment claims dropped by 26 thousand, as the unemployment rate dropped to 5.9% in January, its lowest level since reunification in 1990. However, key consumer indicators were unexpectedly soft. Germany's economy continues to raise concerns, as consumer indicators have looked dismal this week. Retail Sales, the primary gauge of consumer spending, posted a sharp decline of 0.9%, its fourth decline in five readings. This reading comes on the heels of Preliminary CPI, which declined 0.6%, its first decline in 9 months.

Today, market participants will have their gaze locked on the Bank of England's first "Super Thursday" of the year. Besides the policy decision and the meeting minutes, we will also receive the quarterly Inflation Report with updated economic forecasts for the UK economy, which Governor Carney will present at a press conference after the meeting. We think that the focus will be on the officials' outlook for inflation following the latest acceleration in both the headline and the core CPIs. Both rates surged by more than expected in December and now stand at 1.6% yoy, close to the Bank's 2% target. Considering how quickly these rates have risen in recent months, we expect investors to be on the lookout for any comments regarding the limits of the Bank's willingness to "look through" above-target inflation. It would be interesting to see if Governor Carney is questioned on whether there is a specific CPI rate that the Bank considers as an unofficial "ceiling", after which it will consider tightening policy in order to curb inflation.

Overall, we expect a neutral tone from the BoE, indicating that policy can still respond in both directions if needed. At the same time, we think that the GDP forecasts are likely to be revised upwards, considering the strength in both UK economic indicators and more forward looking surveys, like the PMIs. At the same time, given sterling's notable rebound since the latest Inflation Report, we see the case for a modest downward revision in the near-term CPI forecasts. Given our expectations for a neutral stance overall and positive revisions to the forecasts, we think that the path of least resistance for sterling may be to the upside, at least in the aftermath of the meeting.

GBP/USD traded higher yesterday, breaking above the resistance (now turned into support) of 1.2660 (S1). The move has confirmed a forthcoming higher high on the 4-hour chart and that the short-term trend is back positive. We now expect the bulls to target our next resistance of 1.2720 (R1), defined by the peaks of the 13th and 14th of December, where a clear break is possible to open the way for the 1.2770 (R2) barrier. Switching to the daily chart, even though the short-term trend appears to be positive, the medium-term path remains flat. The rate has been trading between 1.2100 and 1.2850 since the 4th of October.

Fed holds cards close to its chest; no new signals on policy

The FOMC kept borrowing costs unchanged yesterday, as was widely expected, and offered almost no new hints with regards to the timing of the next rate hike. Given that this was one of the meetings without a press conference or updated economic projections, the market action came from the changes in the statement accompanying the decision, or to be precise, the lack of any changes. The only material shift from the previous policy statement was an upgrade in the outlook for consumer and business sentiment, though this is a relatively minor improvement.

Perhaps due to the absence of any fresh forward guidance, the reaction in the dollar was somewhat negative. Overall, we maintain the view that as things currently stand, our base-case scenario is for the Committee to deliver only 2 hikes this year, in line with current market pricing. The excessive USD strength that three hikes could cause and a more dovish Committee this year in terms of voting rights, are factors that could lead to 2 hikes, and not 3 as currently projected by the "dot plot", we think. We would like to see a material pick-up in inflationary pressures, particularly in the core PCE price index, and some clarity around the government's fiscal stimulus package, before we reassess this view.

As for the dollar's path over the next few days, we remain cautiously optimistic, for two main reasons. Firstly, we think that tomorrow's employment report may overcome market expectations, considering that the ADP report was particularly strong yesterday. What's more, on Monday, we may get greater clarity with regards to the new administration's fiscal plans, as the President is expected to submit a preliminary budget proposal to Congress. The preliminary numbers could shed some light into the government's objectives, and thereby diminish some of the uncertainty around the US policy outlook.

EUR/USD tumbled yesterday after it hit resistance at the key barrier of 1.0800 (R1). Nevertheless, the slide was stopped by the 1.0740 (S1) level, and at the time of the FOMC decision, the rate rebounded. Now, it looks to be headed for another test near the 1.0800 (R1), where a possible break could prove a game changer. For now, we prefer to remain neutral as the bears may take charge again near 1.0800 (R1) and aim for another test at 1.0740 (S1). If they manage to overcome that support, we may have the completion of a double top on the 4-hour chart, and we could see initial extensions towards the 1.0685 (S2) hurdle.

Looking ahead though, the greenback's outlook becomes more uncertain. We still believe that the dynamics of monetary policy divergence and increased fiscal stimulus, could be supportive for the currency. However, the recent verbal interventions from the Trump administration with regards to USD strength pose a significant risk to that view. Even though it remains to be seen which of these forces will drive USD in the longer term, we think that in the absence of any actions to back up the government's comments, jawboning alone is unlikely to continue to weaken the dollar for much longer.

The price structure on the daily chart of EUR/USD is lower peaks and lower troughs since the 9th of November. As a result, as long as the recovery started on the 3rd of January remains limited below the 1.0800 (R1) zone, we would treat it as a corrective phase. We would like to see a decisive close above 1.0800 (R1) before we start reconsidering our analysis.

Today's highlights:

In the UK, besides the BoE decision, the government is also expected to publish its "White Paper", a formal policy document that will set out its Brexit negotiating objectives. However, considering that this will probably be a formal reiteration of what PM May outlined in her Brexit speech on the 16th of January, we do not expect a major market moving reaction from this release.

As for the UK economic data, we get the construction PMI for January, though market focus is likely to be fixed on the BoE decision. In Eurozone, the PPI for December is due out and expectations are for a very sharp acceleration in producer prices.

From the US, we get the preliminary labor costs index for Q4 and the forecast is for a notable pick-up. At the same time, we get initial jobless claims for the week that ended January 27th.

Besides Governor Carney, we have one more speaker scheduled for today: ECB Executive Board member Benoit Coeure.

BOE seen holding steady amid Brexit uncertainties

Notes/Observations

USD maintains soft tone following FOMC statement and recent rhetoric from Trump officials

BOE seen keeping policy steady amid Brexit uncertainties

ECB reiterates view to overlook rise in inflation as seen transitory due to energy and base effects

Overnight:

Asia:

South Korea Jan CPI hits highest annual pace since Oct 2012 and achieves target for 1st time in 39 months (2.0% v 1.5%e)

Australia Dec Trade Balance registers a record surplus (A$3.5B v A$2.0Be)

Japan PM Abe stated that MOF has not intervened in FX market but could if in an emergency;Not clear yet what currency policy Trump's administration will pursue; If asked will justify Japan's currency policy at Feb 10th meeting

Japan Jan Consumer Confidence data rises for the 2nd consecutive month to its highest level since Sept 2013 (43.2 v 43.1 prior)

Europe:

UK House of Commons vote in favor of Article 50 draft law to advance legislation to next phase (vote was 498-114). Final vote on Article 50 to be held next week on Wed, Feb 8th

Americas:

Fed unanimously voted unchanged to keep interest rates unchanged (as expected); employment situation remain solid with unemployment rate near recent lows; consumer, business sentiment have improved lately; inflation increased in recent quarters but still below longer-run objective; expected inflation to rise to 2% over medium term

Economic data

(JP) Japan Jan Consumer Confidence: 43.2 v 43.4e (2nd consecutive monthly increase and highest level since Sept 2013)

(ES) Spain Jan Net Unemployment (beat) M/M: +57.3K v +60.6Ke

(UK) Jan Construction PMI (miss): 52.2 v 53.8e (5th month of expansion)

(EU) Euro Zone Dec PPI (beat) M/M: 0.7% v 0.5%e; Y/Y: 1.6% v 1.2%e

Fixed Income Issuance:

(ES) Spain Debt Agency (Tesoro) sold total €3.452B vs. €3.0-4.0B indicated range in 2019, 2030 and 2037 bonds

Sold €1.546B in 0.25% Jan 2019 SPGB; Avg yield: -0.132% v -0.234% prior, bid to cover: 2.30x v 3.98x prior

Sold €1.111B in 1.95% July 2030 SPGB; Avg Yield: 2.147% v 1.558% prior, bid-to-cover: 1.54x v 1.52x prior

Sold €795M in 4.20% Jan 2037 SPGB; Avg Yield: 2.604% v 1.770% prior; Bid-to-cover: 1.54x v 1.43x prior

(ES) Spain Debt Agency (Tesoro) sold €863M vs. € indicated in 1.8% Nov 2024 I/L bond; Real Yield: 0.159% v 0.167% prior; Bid-to-cover: 1.43x v 1.80x prior

(FR) France Debt Agency (AFT) sold total €6.994B vs. €6.0-7.0B indicated range in 2026 and 2031 Oats

Sold €3.996B in Nov 0.25% 2026 Oat; Avg Yield: 1.07% v 0.78% prior; Bid-to-cover: 2.09x v 2.03x prior

Sold €2.998B in May 1.50% 2031 Oat; Avg Yield 1.48% v 1.14% prior; Bid-to-cover: 1.82x v 2.54x prior

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Index snapshot (as of 10:00 GMT)

Indices [Stoxx50 -0.3% at 3,247, FTSE flat at 7,106, DAX -0.4% at 11,616, CAC-40 flat at 4,793, IBEX-35 +0.2% at 9,345, FTSE MIB +1.1% at 18,940, SMI -0.6% at 8,281, S&P 500 Futures -0.4%]

Market Focal Points/Key Themes: European equity indices are trading mixed ahead of the Bank of England’s policy decision and a speech by ECB President Draghi scheduled later; the major banking stocks trading generally lower but mixed as shares of Deutsche Bank lead the sector losses in the Eurostoxx after releasing Q4 results; shares of Daimler also trading notably lower in the index after releasing Q4 results; FTSE 100 being weighed by shares of AstraZeneca and Vodafone after releasing Q4 and Q3 results respectively; Energy, commodity and mining stocks providing some support in the index as oil prices rally intraday and copper prices consolidate around contract highs; shares of Royal Dutch Shell A and B trading notably higher in the index after releasing Q4 results; Italian FTSE MIB outperforming with shares of STMicroelectronic leading the gains in sympathy with results from Infineon in the Dax.

A plethora of upcoming scheduled US earnings (pre-market) include Autoliv, AO Smith, Belden, Becton Dickinson, Brookfield Renewable Energy, Ball Corp, Boston Scientific, CDK Global, Colfax, CIGNA Corp, CME, CMS Energy, ConocoPhillips, Delphi Automotive, Estee Lauder, EQT Corp, Eaton Corp, Group 1 Automotive, Harris Corp, Ingredion, International Paper, Gartner, Lazard, M/I Homes, Marsh & McLennan, Magellan Midstream Partners, Merck & Co, The New York Times, Old Dominion Freight Line, Penn National Gaming, Parker Hannifin, Philip Morris, Ryder System, Resolute Forest Products, Polo Ralph Lauren, Sally Beauty, Sirius XM, Snap-On, Sensata Technologies, Teledyne Technologies, Triumph Group, Xcel Energy, and Xylem.

Equities (as of 09:50 GMT)

Consumer Discretionary: [Emmi EMMN.CH -2.5% (prelim FY16 sales), NetPlay TV NPT.UK +10.3% (to be acquired by Betsson for 9p/shr), Swatch UHR.CH -0.9% (FY16 results)]

Energy: [Royal Dutch Shell RDSA.NL +1.3% (Q4 results)]

Financials: [CaixaBank CABK.ES -0.5% (Q4 results), Danske Bank DANSKE.DK +4.0% (Q4 results), Deutsche Bank DBK.DE -5.0% (Q4 results), DNB DNB.NO -2.3% (Q4 results), Hannover Re HNR1.DE +2.0% (raises FY17 outlook), Infineon IFX.DE +2.2% (Q1 results), ING Groep INGA.NL +0.7% (Q4 results), Swedbank SWEDA.SE +1.1% (Q4 results)]

Healthcare: [AstraZeneca AZN.UK -1.7% (Q4 results), Novo Nordisk NOVOB.DK -5.7% (FY16 results, cuts outlook)]

Industrials: [Assa Abloy ASSAB.SE -4.7% (Q4 results), Daimler DAI.DE -3.4% (Q4 results), Nokian Renkaat NRE1V.FI +5.2% (Q4 results)]

Materials: [Glencore GLEN.UK +0.7% (Q4 production)]

Technology: [Dassault Systems DSY.FR +4.9% (Q4 results), Infineon IFX.DE +2.3% (Q1 results)]

Telecom: [Nokia NOK1V.FI +3.4% (Q4 results), Telenor TEL.NO -3.2% (Q4 results), Vodafone VOD.UK -1.3% (Q3 results)]

Speakers

ECB Economic Bulletin was in-line with recent Draghi press conference noting that headline inflation had increased recently but largely due to energy and that underlying inflation pressures remained subdued. Continued to look through changes in EU Harmonized (HICP) inflation if judged to be transient and to have no implication for the medium-term outlook for price stability

German Dep Fin Min reiterated govt stance that Euro Zone members should consolidate budgets and enact reforms to make it easier for ECB to exit its expansive polic

German Bundesbank's Dombret (ECB SSM member): Opposes Basel III capital increase

Italy Fin Min Podoan said to have outlined measures Italy was ready to adopt in 2017 in letter to EU Commission. Govt to adopt the necessary measures (**Note: Italy did not reference to size of the adjustment. EU Commission had previously asked Italy to cut its 2017 budget deficit by €3.4B)

Scotland First Minister Sturgeon (SNP): Would be a disastrous move for London to block a 2nd Scottish independence referendum

British Defense Min Fallon: London would not facilitate another Scottish independence referendum in this Parliament

Bank of Greece says emergency liquidity assistance (ELA) ceiling lowered to €46.3B from €46.5B

World Bank cut Turkey’s 2016 and 2017 GDP growth forecasts. Cut its 2016 GDP from 3.1% to 2.1% and 2017 GDP from 3.5% to 2.7%. Raised 2017 CPI forecast from 8.0% to 9.0%

Currencies

The USD maintained its recent soft tone that stemmed from the rhetoric from Trump and his various officials on the strong USD. The Fed seemed not to be in a hurry to adjust rates and market expectations of any near term rate hike was dashed (pricing for a March rate hike fell from 28% after a string of strong US data towards 18%)

The GBP/USD was approaching 2-month highs tested the 1.27 level in the session. No changes expected from the BOE later today and likely to reinforce its neutral policy stance and focus on Brexit risk and uncertainties. The Quarterly Inflation Report should see an upgrade to growth forecasts

USD/JPY continued to test key chart support at 112.50 area with any sustains break opening the door for a test of 111.00. Japan's 10-year JGB traded above 0.1% for the first time since December

EUR/USD holding up at the upper end of its weekly range and holding above 1.08

Fixed Income:

Bund futures trade at 161.92 up 31 ticks on risk off trade after the FED left rates on hold. Futures traded a low of 161.63 before reversing with a break below targeting 161.49 then 161.19 followed by 160.80. Continued momentum higher targets 162.22 high, 162.49 then 163.01 followed by 163.38.

Gilt futures trade at 123.70 up 32 ticks trading higher with Bunds ahead of the BoE rate decision later today. Support remains at 123.20 , 122.60, 122.23 then Dec low at 122.08. Resistance moves to 124.13 to close the gap. Short Sterling futures trade flat to up 2bp with Jun17Jun18 remaining at 26/27bp.

Thursday's liquidity report showed Wednesday's excess liquidity rose to €1.301T up €41B from €1.260T prior. Use of the marginal lending facility fell to €97M from €142M prior.

Corporate issuance saw no activity after two large volume days which were mainly comprised of large multi tranche offers. Volume for the week remains at $31.8B. Issuance for Feb is expected to be between $90-100B, with last years issuance for Feb at $104.3B,

Looking Ahead

05:30 (PL) Poland to sell PLN3.0-5.0B in bonds

05:30 (HU) Hungary Debt Agency (AKK) to sell bonds (3 tranches)

06:00 (IE) Ireland Jan Live Registry Monthly Change: No est v -3.3K prior; Live Registry Level: No est v 282.4K prior

06:00 (ZA) South Africa Dec Electricity Consumption Y/Y: No est v 0.3% prior; Electricity Production Y/Y: No est v 2.1% prior

06:45 (US) Daily Libor Fixing

07:00 (UK) Bank of England (BOE) Interest Rate Decision: Expected to leave Interest Rates unchanged at 0.25% and maintains Asset Purchase Target at £435B

07:00 (UK) Bank of England (BOE) Jan Minutes

07:00 (UK) Bank of England (BOE) Inflation Report

07:00 (CZ) Czech Central Bank (CNB) Interest Rate Decision: Expected to leave Repurchase Rate unchanged at 0.05%

07:30 (US) Jan Challenger Job Cuts: No est v 33.6K prior; Y/Y: No est v 42.4% prior

07:30 (UK) BOE Gov Carney speaks at Quarterly Inflation Report Press Conference

08:00 (RU) Russia Gold and Forex Reserve w/e Jan 27th: No est v $385.9B prior

08:00 (SG) Singapore Jan Purchasing Managers Index: 50.5e v 50.6 prior; Electronics Sector Index: No est v 51.2 prior

08:15 (UK) Baltic Dry Bulk Index

08:15 (CZ) Central Bank Gov Rusnok to hold post Rate Decision press conference

08:30 (US) Q4 Preliminary Nonfarm Productivity: 1.0%e v 3.1% prior; Labor Costs: 1.9%e v 0.7% prior

08:30 (US) Initial Jobless Claims: 250Ke v 259K prior; Continuing Claims: 2.06Me v 2.100M prior

08:30 (US) Weekly USDA Net Export Sales

09:00 (MX) Mexico Dec Leading Indicators M/M: No est v -0.13 prior

09:00 (BR) Brazil to sell Fixed Rate 2023 and 2027 Bonds

09:00 (BR) Brazil to sell 2017, 2019 and 2020 LTN Bills

10:00 (DK) Denmark Jan Foreign Reserves (DKK): No est v 451.6B prior

10:00 (CO) Colombia Dec Exports: $2.9Be v $2.7B prior

10:30 (US) Weekly EIA Natural Gas Inventories

12:00 (CA) Canada to sell 2-Year Bonds

News and Events:

Super Thursday unlikely to provide significant GBP boost

Following in the footsteps of the Federal Reserve yesterday and the Bank of Japan on Tuesday, the Bank of England is also expected to leave its monetary unchanged. Therefore, the market is not expecting much on this side. However, the BoE will also provide an updated version of its forecast for growth, inflation, unemployment and wages. Out of this, the main thing the market will scrutinise is how Mark Carney’s team has been taking into account the upcoming Brexit against the backdrop of relatively solid growth. In the latest inflation report published in November, the MPC revised its growth forecast to 1.4% for 2017 compared to 0.8% three months earlier in response to a weakening pound. However, despite the fact that the BoE was overly pessimistic in its August report regarding its growth forecast for 2017, the institution expects that the country will really start to feel the sting of Brexit at this end of this year. Given the fact that the economy has been surprisingly resilient recently, we would be surprised if the BoE revises its forecast to the upside for this year.

On the inflation front, the committee lifted its projections to 2.7% by year-end, compared to 2.0% previously. Since the November meeting, the pound sterling has appreciated slightly (on a trade weighted basis), meaning that it will not justify any upside revision in the consumption price gauge. Nevertheless, the pick up in crude oil prices may provide a reason for an upside revision. All in all, barring a major surprise, this BoE meeting should go unnoticed as the uncertainty stemming from the future EU-UK relationship combined with Trump’s policy reshuffle makes the task very difficult for central banks around the globe. GBP/USD is the only G10 currency that is not taking advantage of the broad dollar weakness this morning, suggesting that the market is anxious about today's meeting.

Fed statement balanced resulting in weaker USD

As was widely expected, the FOMC held its fed fund rate unchanged. Markets were focused on the Fed's analysis of the economic progress in the labor markets and inflation acceleration to gauge the pace of Fed hikes in 2017. Overall, the statement indicates that Fed members are calm over the status of economic improvement and are in no hurry to tighten aggressively. The statement highlighted that labor was near its mandate of full employment. On inflation, the committee indicated that levels were below the longer run objective. Yet by not declaring victory the statement took a dovish tone. While the Fed needs to keep its unbiased perspective there is a feeling that members are preparing for a potentially unforeseen reaction due to Trump's fiscal or trade policy. Judging from Trump's complete mismanagement of executive orders we are not convinced that meaningful policy can be generated. Hence, the probability that Trump will dynamically drive sustained US growth is unlikely. We maintain our forecast for two 25bp rate hikes in 2017. Yet the risk of a steep rate curve is clearly on the table. Given that the two hikes are priced into USD we continue to anticipate further weakness. With ADP coming in well above expectations markets will be watching Friday's payroll report. Given the steady drop in global FX volumes and the lower conviction in USD, we are constructive on high beta and yield EM currencies.

Today's Key Issues (time in GMT):

• ECB Publishes Economic Bulletin EUR / 09:00
• Jan Markit/CIPS UK Construction PMI, exp 53,8, last 54,2 GBP / 09:30
• Jan Reserve Fund, last $16.0b RUB / 09:30
• Jan Wellbeing Fund, last $71.9b RUB / 09:30
• Dec PPI MoM, exp 0,50%, last 0,30% EUR / 10:00
• Dec PPI YoY, exp 1,20%, last 0,10% EUR / 10:00
• Dec Electricity Consumption YoY, last 0,30% ZAR / 11:00
• Dec Electricity Production YoY, last 2,10% ZAR / 11:00
• janv..27 Foreigners Net Bond Invest, last -$157m TRY / 11:30
• janv..27 Foreigners Net Stock Invest, last $456m TRY / 11:30
• Feb 2 Bank of England Bank Rate, exp 0,25%, last 0,25% GBP / 12:00
• Feb BOE Asset Purchase Target, exp 435b, last 435b GBP / 12:00
• Feb BOE Corporate Bond Target, exp 10b, last 10b GBP / 12:00
• Bank of England Inflation Report GBP / 12:00
• Jan Challenger Job Cuts YoY, last 42,40% USD / 12:30
• janv..27 Gold and Forex Reserve, last 385.9b RUB / 13:00
• 4Q P Nonfarm Productivity, exp 1,00%, last 3,10% USD / 13:30
• 4Q P Unit Labor Costs, exp 1,90%, last 0,70% USD / 13:30
• janv..28 Initial Jobless Claims, exp 250k, last 259k USD / 13:30
• janv..21 Continuing Claims, exp 2063k, last 2100k USD / 13:30
• Nov Leading Indicators (MoM), last -0,13 MXN / 14:00
• janv..29 Bloomberg Consumer Comfort, last 45,2 USD / 14:45
• Jan Foreign Reserves, last $371.10b KRW / 21:00
• Jan AiG Perf of Services Index, last 57,7 AUD / 22:30
• Jan Vehicle Domestic Sales AMIA, last 192567 MXN / 23:00

The Risk Today:

EUR/USD's momentum has increased sharply. Hourly resistance area is given at around 1.0800. Hourly support lies at 1.0590 (19/01/2016 low) and 1.0341 (03/01/2017 low). Expected to see continued consolidation. In the longer term, the death cross late October indicated a further bearish bias. The pair has broken key support given at 1.0458 (16/03/2015 low). Key resistance holds at 1.1714 (24/08/2015 high). Expected to head towards parity.

GBP/USD's buying pressures are increasing again. The pair is on the road towards 1.2771 (05/10/2016 high). The technical structure is still anyway showing positive potential. Hourly support is given at 1.2466 (30/01/2016 low). Expected to show further bullish move. The long-term technical pattern is even more negative since the Brexit vote has paved the way for further decline. Long-term support given at 1.0520 (01/03/85) represents a decent target. Long-term resistance is given at 1.5018 (24/06/2015) and would indicate a long-term reversal in the negative trend. Yet, it is very unlikely at the moment.

USD/JPY had surprisingly exited the downtrend channel after monitoring resistance implied by the upper bound. Yet, the pair is back within it. Hourly resistance is given at 115.62 (19/01/2016 high) A break of hourly support given at 112.57 (17/01/2017 low) has confirmed further bearish pressures. We favor a long-term bearish bias. Support is now given at 96.57 (10/08/2013 low). A gradual rise towards the major resistance at 135.15 (01/02/2002 high) seems absolutely unlikely. Expected to decline further support at 93.79 (13/06/2013 low).

USD/CHF's momentum is definitely bearish. Key resistance is given at a distance at 1.0344 (15/12/2016 high). The road is clearly wide-open for further decline. In the long-term, the pair is still trading in range since 2011 despite some turmoil when the SNB unpegged the CHF. Key support can be found 0.8986 (30/01/2015 low). The technical structure favours nonetheless a long term bullish bias since the unpeg in January 2015.

'The euro's weakness is largely the result of the ECB's expansionary policies.' – Leonid Bershidsky, Bloomberg

Pair's Outlook

On Thursday morning the common European currency gained against the US Dollar, as the currency exchange rate approached the 1.08 mark. However, the Euro struggled to gain further gains, as it was being kept down by the 100-day SMA at 1.0792. It is highly unlikely that the pair will move upwards and score additional gains, as already at 1.0803 the long term pattern's upper trend line is located at. The trend line has kept the rate down for the past two trading sessions, initially stopping a jump of the Euro on Tuesday.

Traders' Sentiment

SWFX traders remain bearish regarding the pair, as 56% of open positions are short on Thursday. Meanwhile, 56% of trader set up orders are to sell the Euro.

'ADP just served as a reminder of America's rosier fundamentals, something that has been pushed off to the side with Washington dominating the spotlight.' – Western Union Business Solutions (based on Business Recorder)

Pair's Outlook

Despite a strong US ADP Employment Change reading on Wednesday, the Sterling still outperformed the US Dollar, successfully climbing over the 1.26 major level. Resistance was encountered only around 1.2675, where the 23.60% Fibo and the weekly R1 rest. This group of levels keeps providing relatively strong resistance today, which is likely to cause the Cable to undergo a small bearish correction—what usually occurs ahead of the Friday's NFP data if the figures are anticipated to disappoint. As a result, the GBP/USD pair is expected to slide back down towards the 1.26 mark.

Traders' Sentiment

Although not as strong as yesterday, but market sentiment remains bullish at 59% (previously 63%). At the same time, the portion of orders to acquire the Pound inched down from 56 to 55%.